b r o a d b a n d 

connect v ty 

compet t on pol cy 

ftc staff report 

June 2007 
i

Federal Trade Commission

DEBORAH PLATT MAJORAS Chairman 

PAMELA JONES HARBOUR Commissioner 

JON LEIBOWITZ Commissioner 

WILLIAM E. KOVACIC Commissioner 

J. THOMAS ROSCH Commissioner 

Brian Huseman Chief of Staff 

Charles H. Schneider Executive Director 

Jeffrey Schmidt Director, Bureau of Competition 

Lydia B. Parnes Director, Bureau of Consumer Protection 

Michael A. Salinger Director, Bureau of Economics 

Maureen K. Ohlhausen Director, Office of Policy Planning 

Jeanne Bumpus Director, Office of Congressional Relations 

Randolph W. Tritell Director, Office of International Affairs 

Nancy Ness Judy Director, Office of Public Affairs 

William Blumenthal General Counsel 

Donald S. Clark Secretary of the Commission 

Report Drafters and Contributors: 

Gregory P. Luib, Assistant Director, Office of Policy Planning 

Daniel J. Gilman, Attorney Advisor, Office of Policy Planning 

Christopher M. Grengs, Attorney Advisor, Office of Policy Planning 

James F. Mongoven, Deputy Assistant Director, Bureau of Competition 

Armando Irizarry, Bureau of Competition 

Mary Beth Richards, Deputy Director, Bureau of Consumer Protection 

Elizabeth A. Hone, Assistant Director, Bureau of Consumer Protection 

Robert Schoshinski, Bureau of Consumer Protection 

Denis A. Breen, Assistant Director, Bureau of Economics 

Patrick J. DeGraba, Bureau of Economics 

Rachel Miller Dawson, Assistant General Counsel for Legal Counsel, Office of General Counsel 

Lisa M. Harrison, Office of General Counsel 

Robert B. Mahini, Office of General Counsel 

Kim Vandecar, Congressional Specialist, Office of Congressional Relations 

Katherine Rosenberg, Office of Congressional Relations 

Yael Weinman, Office of International Affairs 

Inquiries concerning this Report should be directed to: 

Maureen K. Ohlhausen, Director, Office of Policy Planning 

(202) 326-2632 or mohlhausen@ftc.gov 

This Report represents the views of the FTC staff and does not necessarily represent the views of 

the Commission or any individual Commissioner. The Commission, however, has voted to 

authorize the staff to issue this Report. 
ii

TABLE OF CONTENTS 

INTRODUCTION AND EXECUTIVE SUMMARY.................................................................................... 1

I: THE INTERNET: HISTORICAL AND TECHNICAL BACKGROUND............................................. 13

A. HISTORICAL DEVELOPMENT.......................................................................................................... 13

B. MAJOR INTERNET COMPONENTS................................................................................................... 23

C. NETWORK MANAGEMENT, DATA PRIORITIZATION, AND OTHER FORMS OF DATA DISCRIMINATION 28 

II: LEGAL AND REGULATORY BACKGROUND AND DEVELOPMENTS....................................... 37 

A. FTC JURISDICTION UNDER THE FTC ACT..................................................................................... 38 

B. FCC JURISDICTION UNDER THE COMMUNICATIONS ACT.............................................................. 42 

C. REGULATORY AND JUDICIAL CLARIFICATION............................................................................... 43 

III: ARGUMENTS IN FAVOR OF AND AGAINST NETWORK NEUTRALITY REGULATION..... 51

A. ARGUMENTS IN FAVOR OF NETWORK NEUTRALITY REGULATION................................................ 52 

B. ARGUMENTS AGAINST NETWORK NEUTRALITY REGULATION...................................................... 60 

IV: DISCRIMINATION, BLOCKAGE, AND VERTICAL INTEGRATION.......................................... 70 

A. LAST-MILE ACCESS CONCERNS CONTINGENT ON MARKET POWER.............................................. 72 

B. POTENTIAL PROBLEMS INDEPENDENT OF LAST-MILE MARKET POWER........................................ 76

C. POTENTIAL BENEFITS OF VERTICAL INTEGRATION....................................................................... 80

D. BRIEF SUMMARY AND REMAINING QUESTIONS............................................................................. 82 

V: DATA PRIORITIZATION........................................................................................................................ 83

A. WHY PRIORITIZE DATA?................................................................................................................ 84

B. PRIORITIZATION VERSUS CAPACITY EXPANSION........................................................................... 86 

C. TYPES AND USES OF DATA PRIORITIZATION.................................................................................. 88

D. CONCLUSION.................................................................................................................................. 96

 

VI: THE CURRENT AND FUTURE STATE OF BROADBAND COMPETITION............................... 98

A. HISTORICAL BACKGROUND: DIAL-UP SERVICE............................................................................. 98

B. VIEWS ON THE STATE OF BROADBAND COMPETITION................................................................... 99

C. MUNICIPAL PROVISION OF WIRELESS INTERNET ACCESS.............................................................. 106

D. FEDERAL SPECTRUM POLICIES...................................................................................................... 109

E. INTERNATIONAL COMPARISONS.................................................................................................... 113

VII: ANTITRUST ANALYSIS OF POTENTIAL BROADBAND PROVIDER CONDUCT.................. 120 

A. GENERAL PRINCIPLES UNDERLYING THE ANTITRUST LAWS......................................................... 120 

B. POTENTIAL ANTITRUST THEORIES................................................................................................. 121 
iii

VIII: CONSUMER PROTECTION ISSUES................................................................................................ 129

A. AN OVERVIEW OF SECTION 5 OF THE FTC ACT..................................................................................................... 129

B. APPLICABILITY OF CONSUMER PROTECTION LAWS TO BROADBAND INTERNET ACCESS SERVICES.. 130

C. ADDITIONAL MEASURES TO PROTECT CONSUMERS........................................................................................... 136

IX: PROPOSALS REGARDING BROADBAND CONNECTIVITY.........................................................138 

A. EXISTING AGENCY OVERSIGHT..................................................................................................... 138 

B. FCC POLICY STATEMENT AND MERGER CONDITIONS.................................................................. 141 

C. LEGISLATIVE PROPOSALS.............................................................................................................. 145

D. OTHER PROPOSALS RELATING TO BROADBAND CONNECTIVITY................................................... 147

X: SUGGESTED GUIDING PRINCIPLES.................................................................................................. 155

A. COMPETITION IN BROADBAND INTERNET ACCESS SERVICES........................................................ 155 

B. GROUNDS FOR PROCEEDING WITH CAUTION................................................................................. 157

C. CONTINUED AGENCY OVERSIGHT................................................................................................. 161 

 

APPENDIX 1 – BROADBAND CONNECTIVITY COMPETITION POLICY WORKSHOP PARTICPANTS 163 

APPENDIX 2 – GLOSSARY OF FREQUENTLY USED ACRONYMS................................................... 165 
1

INTRODUCTION AND EXECUTIVE SUMMARY 

Background

The Internet1

 has profoundly impacted numerous aspects of daily life for many 

people in the United States and is increasingly vital to the American economy. In 

response to recent debate relating to Internet access issues, Federal Trade Commission 

(“FTC” or “Commission”) Chairman Deborah Platt Majoras announced the formation of 

the Internet Access Task Force (“Task Force”) in August 2006 and invited interested 

parties to meet with the Task Force to discuss issues relating to Internet access generally 

and net neutrality2

 in particular.3 The Task Force held a two-day public workshop on 

broadband connectivity competition policy in February 2007 (“Workshop”) to bring 

together consumer advocates and experts from business, government, academia, and the 

technology sector to explore competition and consumer protection issues relating to 

broadband Internet access.4

 The purpose of this Report is to summarize the Task Force’s 

learning on broadband Internet connectivity in general and network neutrality in 

particular, as developed from the Workshop, meetings between the Task Force and 

various interested parties, and the FTC staff’s independent research. 

 

1

 As discussed in more detail in Chapter I of this Report, the term “Internet” is commonly used to refer to 

the decentralized, interconnected network of computer networks that allows computers to communicate 

with each other. Individual networks are owned and administered by a variety of organizations, such as 

private companies, universities, research labs, government agencies, and municipalities. 

2

 The terms “net neutrality” and “network neutrality” have been used to identify various policy concerns 

and prescriptions raised by diverse parties to the larger social discussion of broadband Internet 

connectivity. Typically, such terms are identified with positions that recommend, at least, some legal or 

regulatory restrictions on broadband Internet access services that include non-discrimination requirements 

above and beyond any that may be implied by existing antitrust law or Federal Communications 

Commission (“FCC”) regulations. Particular concerns and positions are explored in some detail throughout 

the Report, but the terms “net neutrality” and “network neutrality” are used here, interchangeably, to refer 

to this larger family of views. Unless otherwise clarified, our terminological choice is not meant to endorse 

any particular policy position. 

3 See Deborah Platt Majoras, Chairman, FTC, Luncheon Address, The Progress & Freedom Foundation’s 

Aspen Summit, The Federal Trade Commission in the Online World: Promoting Competition and 

Protecting Consumers (Aug. 21, 2006), available at

http://ftc.gov/speeches/majoras/060821pffaspenfinal.pdf. 

4

 The agenda, transcript, public comments, and other information relating to the Workshop are available on 

the FTC’s Web site at http://www.ftc.gov/opp/workshops/broadband/index.shtm. In addition, Appendix 1 

to this Report provides the identity and affiliation of the Workshop participants. 

Throughout this Report, citations to “Public Comments” refer to comments submitted to the FTC 

in response to its request for public comments on the topics addressed at the Workshop. In addition, 

citations to “Tr.” refer to the Workshop transcript, which is comprised of two volumes. Volume I 

corresponds to the proceedings on February 13, 2007; Volume II corresponds to the proceedings on 

February 14, 2007. Speakers are identified by last name. Finally, citations to “Participant Presentations” 

refer to presentations, including slide presentations and commentary, provided by Workshop participants. 
2

Originally, the Internet developed out of efforts by researchers at American 

universities and the U.S. Department of Defense Research Projects Agency (“DARPA”)5

in the 1960s and 1970s to create and test interconnected computer networks that would 

communicate via data packet switching rather than traditional circuits. Today, the 

Internet – which enables applications such as e-mail and browsers that search the World 

Wide Web (the “Web”) – connects many millions of end users (and more than one 

hundred million Web sites worldwide) to content, applications, and each other. End users 

include the initial government and academic centers, corporate entities across all sectors 

of the economy, and individuals and associations. 

Individual end users (and networks of end users) arrange for Internet access via a 

“last mile” connection to an Internet service provider (“ISP”),6

 which provides, in turn, 

routing and connections from the ISP’s own network to the Internet. Content and 

applications providers offer their products and services to end users via network 

operators, which enable connectivity and transport into the middle, or “core,” of the 

Internet. Before the turn of the century, most computer users connected to the Internet 

using “narrowband,” dial-up telephone connections and modems to transmit data over the 

telephone system’s traditional copper wirelines. Much faster “broadband” connections 

recently have been deployed using various technologies, including coaxial cable 

wirelines, upgraded copper digital subscriber lines (“DSL”), and to a lesser extent fiberoptic wirelines, wireless, satellite, and broadband over powerlines (“BPL”). 

Traditionally, data traffic has traversed the Internet on a “first-in-first-out” and 

“best-efforts” basis. This protocol for data transmission was established principally as a 

result of DARPA’s original priority, which was to develop an effective technique for 

communications among existing interconnected networks, and which placed network 

survivability – or the potential for robust network operation in the face of disruption or 

infrastructure destruction – as the top goal in designing the overall architecture of this 

network of networks. Since the Internet’s earliest days, however, computer scientists 

have recognized that network resources are scarce and that traffic congestion can lead to 

reduced performance. Although different data transmission protocols and the viability of 

usage-based pricing mechanisms were explored throughout the 1980s and 1990s, the 

debate over broadband connectivity policy did not reach critical mass until recently. 

Technical, business, legal, and regulatory developments all appear to have contributed to 

the acceleration of the discussion. 

Regulatory jurisdiction over broadband services generally is subject to the shared 

jurisdiction of the FCC, the FTC, and the Department of Justice (“DOJ”).7

 FCC 

jurisdiction comes chiefly from the Communications Act of 1934, as amended 

(“Communications Act”).8

 FTC jurisdiction over broadband arises chiefly under its 

 

5

 Appendix 2 to this Report provides a glossary of acronyms that are frequently used herein. 

6

 In this Report, we also refer to broadband ISPs as “broadband providers” and “access providers.” 

7

 See infra Chapters II and IX.A for discussion of various jurisdictional issues. 

8

 47 U.S.C. §§ 151 et seq.
3

statutory mandate to prevent “unfair methods of competition” and “unfair or deceptive 

acts or practices in or affecting commerce” under the FTC Act.9

 The FTC’s authority to 

enforce the federal antitrust laws generally is shared with DOJ’s Antitrust Division. The 

FCC, FTC, and DOJ have exercised their existing authority in various ways. All three 

agencies have scrutinized proposed mergers in Internet-related markets and have 

negotiated significant conditions on certain mergers allowed to go forward.10 In addition, 

the FTC has enforced the consumer protection laws, bringing a variety of cases against 

Internet service providers that have engaged in allegedly deceptive marketing and billing 

practices.11

Certain judicial and regulatory decisions in recent years have clarified the scope 

of broadband regulation in two fundamental regards. First, since about 2000, the FCC 

has undertaken a substantial and systematic deregulation of broadband services and 

facilities, concluding that cable, wireline, powerline, and wireless broadband Internet 

access services are “information services” that are not subject to common carrier 

requirements.12 The first of these decisions was sustained by the Supreme Court in 

National Cable & Telecommunications Association v. Brand X Internet Services.

13 

Second, these decisions have served to reinforce and expand FTC jurisdiction 

over broadband Internet access services. That jurisdiction had once been regarded as 

limited to the extent that the FTC’s general enforcement authority under the FTC Act did 

not extend to entities that were “common carriers” under the Communications Act. The 

regulatory and judicial decisions at issue, however, confirmed that the larger categories of 

broadband Internet access services, as information services, are not exempt from FTC 

enforcement of the FTC Act. 

 In recent years, changes in both user demand and technology have prompted some 

broadband providers openly to consider prioritizing certain data traffic to improve 

network management and provide premium services. The demand for bandwidth has 

increased dramatically, as a growing number of users seek access to increasingly datarich Internet content, such as streaming video, which often requires considerable 

bandwidth or has particular quality-of-service requirements. That demand has prompted 

 

9

 15 U.S.C. §§ 41 et seq.

10 See, e.g., Am. Online, Inc. & Time Warner, Inc., FTC Dkt. No. C-3989 (Dec. 17, 2000) (complaint), 

available at http://www.ftc.gov/os/2000/12/aolcomplaint.pdf. See infra Chapters II and IX for discussion 

of FCC, FTC, and DOJ scrutiny of mergers in the area of broadband Internet access. 

11 See, e.g., Am. Online, Inc. & CompuServe Interactive Servs., Inc., FTC Dkt. No. C-4105 (Jan. 28, 2004) 

(decision and order), available at http://www.ftc.gov/os/caselist/0023000/040203aolcsdo.pdf; Juno Online 

Servs., Inc., FTC Dkt. No. C-4016 (June 29, 2001) (decision and order), available at

http://www.ftc.gov/os/2001/06/junodo.pdf. 

12 Particular rulemaking and other administrative decisions along these lines are discussed in more detail in 

Chapters II and IX, infra. 

13 545 U.S. 967 (2005). 
4

concern about present and future congestion and about the need for further infrastructure 

investment and development. At the same time, technological developments have made 

feasible differentiation in delivery of data of various types, or from various sources, 

based on payment to or affiliation with a network operator. 

In response, various interested parties, including some content and applications 

providers and commentators, have expressed concern about network operators’ use of 

these technologies in an environment that is not subject to common carrier regulations. 

Some of these providers and commentators, therefore, have proposed that the 

transmission of data on the Internet be subject to some type of “net neutrality” regulation 

that forbids or places restraints on some types of data or price discrimination by network 

operators. Opponents of net neutrality regulation assert that it is not just unnecessary, but 

potentially harmful, and that allowing network operators to innovate freely across 

technical and business contexts, and to differentiate their networks, will lead to enhanced 

service offerings for both end users and content and applications providers. 

Before turning to the policy discussion that follows, it is worth clarifying that this 

Report reflects the views of the staff of an agency that enforces the federal antitrust and 

consumer protection laws. The statutory mission of the FTC is to protect both 

competition and consumers by safeguarding and encouraging the proper operation of the 

free market. In carrying out that mission, the FTC primarily is focused on maximizing 

consumer welfare, as that term is defined in an economic sense in modern antitrust and 

consumer protection jurisprudence. We recognize that preserving the diversity of views 

expressed on the Internet is one of the animating principles of many of the most ardent 

proponents of network neutrality. In this Report, however, we do not attempt to balance 

consumer welfare (as we use it, in the economic sense) and free expression.14 Instead, 

the Report focuses on the consumer welfare implications of enacting some form of net 

neutrality regulation. 

Further, although the goal of increasing competition in broadband Internet access 

is fundamental to the FTC staff’s interest and may be widely shared, how best to achieve 

that goal is a point of sharp disagreement. What the FTC can offer in this debate is an 

explanation of which behavior the antitrust and consumer protection laws already 

proscribe and a framework for analyzing which conduct may foster or impede 

competition in particular circumstances. 

The Report is organized as follows. Chapter I provides technical information on 

the functioning of the Internet, and Chapter II provides background information on the 

 

14 See, e.g., Mercatus Center, Public Comment 27, at 10 (“If the desired outcome is that anyone willing to 

pay the monthly price for Internet access can communicate with others at some minimum speed, then a 

policy that promotes ‘neutral’ treatment of everyone on the network may be appropriate. But if the desired 

outcome is to have as many people as possible connected to the Internet so they can speak if they so 

choose, then a different policy, aimed at reducing the consumer’s total cost of Internet access as well as 

usage, may be most effective, even if it does not mandate ‘neutrality.’”); Feld, Tr. II at 75 (“It is a question 

about balancing. . . . I can say that something does introduce a certain amount of economic inefficiency 

and it is still extraordinarily valuable for the contribution that it gives to us as a society, as a democracy . . . 

. I would argue that is something we should be willing to consider.”). 
5

legal and regulatory developments that have fueled the debate over net neutrality 

regulation. The purpose of these Chapters is to inform the subsequent policy discussion. 

Chapter III identifies and briefly describes the various arguments for and against net 

neutrality regulation that have been put forth to date. Chapter IV analyzes potential 

conduct by ISPs and other network operators, including vertical integration into content 

and applications and discrimination against non-affiliated providers of content and 

applications. Chapter V analyzes the potential use of data prioritization technologies by 

network operators. Chapter VI considers the current and future state of competition in 

the area of broadband Internet access. Chapter VII explores the application of the 

antitrust laws to certain potential conduct and business arrangements involving ISPs and 

other network operators. Chapter VIII addresses consumer protection issues relating to 

broadband Internet access. Chapter IX identifies regulatory, legislative, and other 

proposals for broadband Internet access that have been put forth to date. Finally, Chapter 

X identifies guiding principles for policy makers to consider prior to enacting any new 

laws or regulations in this area. 

The Contours of the Debate

Proponents of network neutrality regulation include, among others, some content 

and applications providers, non-facilities-based ISPs, and various commentators. They 

generally argue that “non-neutral” practices will cause significant and wide-ranging 

harms and that the existing jurisdiction of the FCC, FTC, and DOJ, coupled with 

Congressional oversight, are insufficient to prevent or remedy those harms. Proponents 

suggest that, with deregulation of broadband services, providers of certain broadband 

Internet services have the legal ability, as well as economic incentives, to act as 

gatekeepers of content and applications on their networks. 

Principally, these advocates express concern about the following issues: (1) 

blockage, degradation, and prioritization of content and applications; (2) vertical 

integration by ISPs and other network operators into content and applications; (3) effects 

on innovation at the “edges” of the network (that is, by content and applications 

providers); (4) lack of competition in “last-mile” broadband Internet access markets; (5) 

remaining legal and regulatory uncertainty in the area of Internet access; and (6) the 

diminution of political and other expression on the Internet. Not all proponents of net 

neutrality regulation oppose all forms of prioritization, however. For example, some 

believe that prioritization should be permitted if access to the priority service is open to 

all content and applications providers on equal terms; that is, without regard to the 

identity of the content or application provider. 

Opponents of network neutrality regulation include, among others, some 

facilities-based wireline and wireless network operators and other commentators. They 

maintain that net neutrality regulation will impede investment in the facilities necessary 

to upgrade Internet access and may hamper technical innovation. They also argue that 

the sorts of blocking conduct described by net neutrality proponents are mainly 

hypothetical thus far and are unlikely to be widespread and thus are insufficient to justify 

a new, ex ante regulatory regime. 
6

Principally, opponents of net neutrality regulation argue that: (1) neutrality 

regulations would set in stone the status quo, precluding further technical and businessmodel innovation; (2) effective network management practices require some data 

prioritization and may require certain content, applications, or attached devices to be 

blocked altogether; (3) new content and applications are likely to require prioritization 

and other forms of network intelligence; (4) allowing network operators to innovate 

freely and differentiate their networks permits competition that is likely to promote 

enhanced service offerings; (5) prohibiting price differentiation would reduce incentives 

for network investment generally and may prevent pricing and service models more 

advantageous to marginal consumers; (6) vertical integration by network operators into 

content and applications and certain bundling practices may benefit consumers; and (7) 

there is insufficient evidence of either the likelihood or severity of potential harms to 

justify an entirely new regulatory regime, especially given that competition is robust and 

intensifying and the market generally is characterized by rapid technological change. 

Competing Concerns about Integration and Differentiation

Proponents of net neutrality regulation have raised various concerns about the 

effects of data or price differentiation in broadband markets.15 Certain of these concerns 

are tied to vertical integration (broadly construed), as broadband Internet access providers 

have begun to offer online content and applications in addition to their primary access 

services. Other concerns are independent of such integration. 

In particular, proponents are concerned that vertical integration by Internet access 

providers into content and applications markets could prompt them to block, degrade, or 

charge higher prices to competing content or applications. New information 

technologies, such as deep packet inspection, may allow network operators to identify the 

source and content of much of the data traffic they handle. Hence, a broadband provider 

with significant market power in a given access market, which has an interest in content 

or applications generally, could have an incentive to block or degrade competing content 

or applications. 

Independent of market power considerations, some net neutrality proponents have 

raised concerns about the so-called “terminating access monopoly problem,” which could 

result from broadband Internet access providers charging content or applications 

providers terminating fees for delivery to end users over the last mile. Some proponents 

also have expressed concern that if broadband providers are allowed to sign exclusive 

deals with content or applications providers, end users may be unable to access much of 

the content they desire, thus “balkanizing” the Internet. 

On the other hand, because vertical integration may offer efficiencies that are 

procompetitive and pro-consumer, not all vertical integration is problematic. More 

particularly, opponents of net neutrality regulation maintain that some degree of vertical 

 

15 See infra Chapters IV and V for more detailed discussion of data differentiation and price differentiation, 

respectively. 
7

integration by Internet access providers into content and applications may facilitate 

investment in infrastructure, investment in content or applications, optimization of fit 

between content and delivery systems, and pricing benefits for consumers. They assert 

that such vertical integration also may facilitate entry and thereby increase competition in 

broadband Internet access markets. Further, the incentives of broadband providers may 

cut both ways: for example, despite potentially having an incentive to favor affiliated 

content and applications, access providers have argued that they have an interest in 

providing access to a wide range of content and applications, which are essential 

complements to the services they sell. 

As is the case with data discrimination, it is impossible to determine in the 

abstract whether allowing content and applications providers (or even end users) to pay 

broadband providers for prioritized data transmission will be beneficial or harmful to 

consumer welfare.16 Such prioritization may provide benefits, such as increased 

investment and innovation in networks and improved quality of certain content and 

applications that require higher-quality data transmission, as net neutrality opponents 

claim. Network neutrality proponents have raised concerns, however, regarding potential 

adverse effects of data prioritization, including, among others: (1) a diminution in 

innovation by content and applications providers – particularly those unable to pay for 

prioritization; (2) the intentional or passive degradation of non-prioritized data delivery; 

and (3) increased transaction costs resulting from negotiations between broadband 

providers and content and applications providers over prioritization. 

The balance between competing incentives on the part of broadband providers to 

engage in, and the potential benefits and harms from, discrimination and differentiation in 

the broadband area raise complex empirical questions and may call for substantial 

additional study of the market generally, of local markets, or of particular transactions. 

Again, further evidence of particular conduct would be useful for assessing both the 

likelihood and severity of any potential harm from such conduct. 

Present and Future Broadband Competition17

Proponents and opponents of net neutrality regulation have fundamentally 

different views on the present (and likely future) state of competition in the broadband 

industry. Proponents argue either that a national market for broadband Internet access is, 

in effect, a cable-telephone duopoly or that there are significant failures of competition in 

many local markets. Opponents characterize the market as highly competitive. 

Broadband Internet access generally is a relatively new industry characterized by high 

levels of demand growth from consumers, high market shares held by incumbent cable 

and telephone providers, and many new entrants trying to capture some share of the 

market. 

 

16 See infra Chapter V. 

17 Broadband competition issues are discussed throughout this Report, particularly in Chapters VI and VII. 
8

FTC staff did not conduct independent empirical research regarding competition 

in local broadband Internet access markets for the purposes of this Report. We note that 

opponents of net neutrality regulation have pointed to evidence on a national scale that 

(1) access speeds are increasing, (2) prices (particularly speed-adjusted or qualityadjusted prices) are falling, and (3) new entrants, including wireless and other 

competitors, are poised to challenge the incumbent cable and telephone companies. We 

note, too, that statistical research conducted by the FCC has tended to confirm these 

general trends.18 For example, broadband deployment and penetration have increased 

dramatically since 2000. The FCC estimated that by 2006, broadband DSL service was 

available to 79 percent of the households that were served by a telephone company, and 

cable modem service was available to 93 percent of the households to which cable 

companies could provide cable television service.19

Jurisdiction and the Application of Antitrust Law

The competitive issues raised in the debate over network neutrality regulation are 

not new to antitrust law, which is well-equipped to analyze potential conduct and 

business arrangements involving broadband Internet access. The antitrust laws are 

grounded in the principle that competition serves to protect consumer welfare. In 

conducting an antitrust analysis, then, the ultimate issue would be whether broadband 

providers engage in unilateral or joint conduct that is likely to harm competition and 

consumers in a relevant market. 

Many proponents of net neutrality regulation are concerned that broadband 

Internet access suppliers have market power in the last-mile access market and that they 

will leverage that power into adjacent content and applications markets in a way that will 

harm competition in those markets and, ultimately, consumers. Such leveraging may 

take the form of exclusive dealing arrangements, refusals to deal, vertical integration, or 

certain unilateral conduct. All of these types of conduct can be anticompetitive and 

harmful to consumers under certain conditions. They also, however, can be 

procompetitive, capable of improving efficiency and consumer welfare, which involves, 

among other things, the prices that consumers pay, the quality of goods and services 

offered, and the choices that are available in the marketplace. Accordingly, such conduct 

would be analyzed under the antitrust laws to determine the net effect of such conduct on 

consumer welfare. 

 

18 See, e.g., FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF JUNE 30, 2006 (2007) 

[hereinafter FCC, HIGH-SPEED SERVICES], available at

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-270128A1.doc. Although some have questioned 

whether the methodology used in compiling this data allows the FCC to provide a reliable analysis of 

competition in particular markets, the FCC data does provide an overall picture of the significant growth in 

broadband penetration over the past few years. 

19 See, e.g., id. at 2-4, 5 tbl.1, 6 tbl.2, 7 tbl.3, 19 tbl.14. 
9

 There nonetheless remains significant disagreement with respect to the adequacy 

of existing agency oversight. Some proponents of net neutrality regulation have argued 

that existing laws, regulations, and agency oversight are inadequate to safeguard 

competition in broadband Internet access markets. Those opposed to net neutrality 

regulation, however, have argued that current competition law is adequate, that careful 

rule-of-reason application of the law is critical to the preservation of competition, and 

that additional regulations likely would be over-intrusive and, on balance, a burden to 

vibrant competition in broadband markets. 

Consumer Protection Issues

 Effective consumer protection in the broadband marketplace is essential to robust 

competition in that market – regardless of the outcome of the current broadband 

connectivity debate. The FTC has been active in enforcing relevant consumer protection 

law, bringing a variety of cases against ISPs that have engaged in allegedly deceptive 

marketing and billing practices. The Workshop highlighted various consumer protection 

concerns. Several Workshop participants argued that such concerns were best addressed 

under FTC jurisdiction, given the FTC’s statutory mandate, its interest and experience in 

consumer protection issues generally, and its interest and experience in consumer 

protection aspects of various Internet services in particular. 

 Internet access implicates two broad areas of consumer protection: (1) clear and 

conspicuous disclosure of material terms of Internet access services; and (2) security and 

privacy issues created by broadband Internet access services. Current federal consumer 

protection law can address both sets of concerns, although consumer protection issues in 

the broadband marketplace may present unique technical and jurisdictional challenges, 

both to consumers and law enforcement agencies. Commentators within and without the 

Workshop have suggested that federal law enforcement fruitfully could be augmented by 

industry self-regulation and expanded federal guidance on pertinent issues. 

Suggested Guiding Principles 

The FTC’s Internet Access Task Force has conducted a broad examination of the 

technical, legal, and economic issues underpinning the debate surrounding broadband 

connectivity competition policy. Based on this examination, as well as our experience 

with the operation of myriad markets throughout the economy, we identify guiding 

principles that policy makers should consider in evaluating options in the area of 

broadband Internet access.20 We have provided an explanation of the conduct that the 

antitrust and consumer protection laws already proscribe and a framework for analyzing 

which conduct may foster or impede competition in particular circumstances. In 

evaluating whether new proscriptions are necessary, we advise proceeding with caution 

before enacting broad, ex ante restrictions in an unsettled, dynamic environment. 

 

20 See infra Chapter X. 
10

There is evidence that the broadband Internet access industry is moving in the 

direction of more, not less, competition, including fast growth, declining prices for 

higher-quality service, and the current market-leading technology (i.e., cable modem) 

losing share to the more recently deregulated major alternative (i.e., DSL). We 

nonetheless recognize that not every local broadband market in the United States may 

enjoy vigorous competition.21 This Report does not reflect a case-by-case analysis of the 

state of competition in each of the localities that may represent relevant antitrust markets. 

There also appears to be substantial agreement on the part of both proponents and 

opponents of net neutrality regulation that greater competition in the area of broadband 

Internet access would benefit consumers. Thus, to the extent that policy makers are not 

content to wait for the market to increase competition, they should consider pursuing 

various ways of increasing competition in the provision of broadband Internet access. 

Based on what we have learned through our examination of broadband 

connectivity issues and our experience with antitrust and consumer protection issues 

more generally, we recommend that policy makers proceed with caution in evaluating 

proposals to enact regulation in the area of broadband Internet access. The primary 

reason for caution is simply that we do not know what the net effects of potential conduct 

by broadband providers will be on all consumers, including, among other things, the 

prices that consumers may pay for Internet access, the quality of Internet access and other 

services that will be offered, and the choices of content and applications that may be 

available to consumers in the marketplace. 

With respect to data discrimination, broadband providers have conflicting 

incentives relating to blockage of and discrimination against data from non-affiliated 

providers of content and applications.22 In the abstract, it is impossible to know which of 

these incentives would prove stronger for each broadband provider. Further, even 

assuming such discrimination were to take place, it is unknown whether the net effect on 

consumer welfare would be adverse. Likewise, it is not possible to know in the abstract 

whether allowing content and applications providers to pay broadband providers for 

prioritized data transmission will be beneficial or harmful to consumers.23

Several open questions that likely will be answered by either the operation of the 

current marketplace or technological developments provide additional reasons for 

caution. These questions include, among others: (1) How much demand will there be 

from content and applications providers for data prioritization?; (2) Will effective data 

prioritization, throughout the many networks comprising the Internet, be feasible?; (3) 

Would allowing broadband providers to practice data prioritization necessarily result in 

the degradation of non-prioritized data delivery?; (4) When will the capacity limitations 

of the networks comprising the Internet result in unmanageable or unacceptable levels of 

 

21 See infra Chapter VI.B. 

22 See infra Chapter IV. 

23 See infra Chapter V. 
11

congestion?; and (5) If that point is reached, what will be the most efficient response 

thereto: data prioritization, capacity increases, a combination of these, or some as yet 

unknown technological innovation? The eventual answers to these questions may give 

policy makers key information about the net effects on consumer welfare arising from the 

conduct and business arrangements that network neutrality regulation would prohibit or 

limit. 

Policy makers also should carefully consider the potentially adverse and 

unintended effects of regulation in the area of broadband Internet access before enacting 

any such regulation. Industry-wide regulatory schemes – particularly those imposing 

general, one-size-fits-all restraints on business conduct – may well have adverse effects 

on consumer welfare, despite the good intentions of their proponents. Even if regulation 

does not have adverse effects on consumer welfare in the short term, it may nonetheless 

be welfare-reducing in the long term, particularly in terms of product and service 

innovation. Further, such regulatory schemes inevitably will have unintended 

consequences, some of which may not be known until far into the future. Once a 

regulatory regime is in place, moreover, it may be difficult or impossible to undo its 

effects. 

 Two aspects of the broadband Internet access industry heighten the concerns 

raised by regulation generally. First, the broadband industry is relatively young and 

dynamic, and, as noted above, there are indications that it is moving in the direction of 

more competition. Second, to date we are unaware of any significant market failure or 

demonstrated consumer harm from conduct by broadband providers. Policy makers 

should be wary of enacting regulation solely to prevent prospective harm to consumer 

welfare, particularly given the indeterminate effects that potential conduct by broadband 

providers may have on such welfare. 

 The federal antitrust agencies, the FTC and the DOJ, and the FCC share 

jurisdiction over broadband Internet access, with each playing an important role in 

protecting competition and consumers in this area. Further, as a byproduct of the 

ongoing debate over network neutrality regulation, the agencies have a heightened 

awareness of the potential consumer harms from certain conduct by, and business 

arrangements involving, broadband providers. Perhaps equally important, many 

consumers are now aware of such issues. Consumers – particularly online consumers – 

have a powerful collective voice. In the area of broadband Internet access, they have 

revealed a strong preference for the current open access to Internet content and 

applications. 

 The FTC has been involved in the Internet access area for over a decade and will 

continue to be involved in the evolving area of broadband access. The FTC Act is 

sufficiently flexible to allow the FTC to enforce the antitrust and consumer protection 

laws in most industries, including those involving new and ever-changing technologies. 

The fundamental principles of antitrust and consumer protection law and economics that 

we have applied for years are as relevant to the broadband industry as they are to other 

industries in our economy. 
12

The FTC will continue to devote substantial resources to maintaining competition 

and protecting consumers in the area of broadband Internet access, using a variety of 

tools. The FTC will continue to enforce the antitrust and consumer protection laws in 

evaluating conduct and business arrangements involving broadband access. Further, the 

FTC’s Broadband Connectivity Competition Policy Workshop and this Report exemplify 

some of the diverse resources the agency may bring to bear on Internet access issues, in 

addition to specific law enforcement actions. The Workshop and Report reflect the 

agency’s interest in and commitment to developing competition and consumer protection 

policy. Finally, the agency will continue to expend considerable efforts at consumer 

education, industry guidance, and competition advocacy in the important area of Internet 

access. 
13

I. THE INTERNET: HISTORICAL AND TECHNICAL BACKGROUND 

The Internet is a decentralized network of computer networks that enables 

millions of private and public computers around the world to communicate with each 

other. This interconnection of multiple computer networks, which otherwise would 

function only as a series of independent and isolated islands, gives rise to the term 

“Internet” as we know it today.24 This Chapter is organized as follows. Section A 

summarizes the historical development of the Internet and describes how data is routed 

over it; Section B discusses the relationship between “last-mile” Internet service 

providers, Internet “backbone” networks, and content and applications providers; and 

Section C explores the technical aspects of network management, data prioritization, and 

other forms of data “discrimination.” 

A. Historical Development 

The Internet developed out of research efforts funded by the U.S. Department of 

Defense Advanced Research Projects Agency in the 1960s and 1970s to create and test 

interconnected computer networks.25 The fundamental aim of computer scientists 

working on this “ARPANET” was to develop an overall Internet architecture that could 

connect and make use of existing computer networks that might, themselves, be different 

 

24 The Federal Networking Council, a group of U.S. federal agency representatives involved in the early 

development of federal networking, for example, adopted this definition of the term “Internet” in 1995: 

“Internet” refers to the global information system that– 

(i) is logically linked together by a globally unique address space based on the Internet 

Protocol (IP) or its subsequent extensions/follow-ons; 

(ii) is able to support communications using the Transmission Control Protocol/Internet 

Protocol (TCP/IP) suite or its subsequent extensions/follow-ons, and/or other IPcompatible protocols; and 

(iii) provides, uses or makes accessible, either publicly or privately, high level services 

layered on the communications and related infrastructure described herein. 

U.S. Federal Networking Council, Resolution dated October 24, 1995, in Robert E. Kahn & Vinton G. 

Cerf, What Is the Internet (and What Makes It Work) n.xv (1999), available at

http://www.cnri.reston.va.us/what_is_internet.html. 

The convention of writing “internet” in lower case letters typically refers to interconnected 

networks generally, while writing “Internet” with an uppercase “I” is generally used to refer to the original 

or current version of the Internet. DOUGLAS E. COMER, THE INTERNET BOOK 60 (4th ed. 2007). 

Sometimes, though, individual networks are also referred to as being alternative “Internets.” E.g., 

INTERNET2, ABOUT US (2007), available at http://www.internet2.edu/about. 

25 See generally David D. Clark, The Design Philosophy of the DARPA Internet Protocols, COMPUTER 

COMM. REV., Aug. 1988, at 106, available at http://nms.csail.mit.edu/6829-papers/darpa-internet.pdf; 

BARRY M. LEINER ET AL., A BRIEF HISTORY OF THE INTERNET, 

http://www.isoc.org/internet/history/brief.shtml (last visited June 18, 2007); COMER, supra note 24, at 62. 
14

both architecturally and technologically.26 The secondary aims of the ARPANET project 

were, in order of priority: (1) Internet communication must continue despite the loss of 

networks or gateways between them; (2) the Internet architecture must support multiple 

types of communications services; (3) the architecture must accommodate a variety of 

networks; (4) it must permit distributed, decentralized management of its resources; (5) 

the architecture must be cost-effective; (6) the architecture must permit attachment by 

computer devices with a low level of effort; and (7) the resources used in the Internet 

architecture must be accountable.27 That is to say, ARPANET’s first priority was 

network survivability in a potentially hostile environment, and its last priority was 

providing a system for allocating charges for passing data packets from network to 

network.28

 By the late 1960s, computer scientists were experimenting with non-linear 

“packet-switched” techniques to enable computers to communicate with each other.29 

Using this method, computers disassemble information into variable-size pieces of data 

called “packets” and forward them through a connecting medium to a recipient computer 

that then reassembles them into their original form. Each packet is a stand-alone entity, 

like an individual piece of postal mail, and contains source, destination, and reassembly 

information. Unlike traditional circuit-switched telephone networks, packet-switched 

networks do not require a dedicated line of communication to be allocated exclusively for 

the duration of each communication. Instead, individual data packets comprising a larger 

piece of information, such as an e-mail message, may be dispersed and sent across 

 

26 Clark, supra note 25, at 106 (“The top level goal for the DARPA Internet Architecture was to develop an 

effective technique for multiplexed utilization of existing interconnected networks.”). 

27 Id. at 107. 

28 Id. Besides survivability, “[t]here were also other concerns, such as implementation efficiency, 

internetwork performance, but these were secondary considerations at first.” LEINER ET AL., supra note 25. 

David D. Clark, who served as chief Protocol Architect for TCP/IP from 1981-89, has noted that the 

ARPANET’s original goals differ from what an architecture designed for commercial purposes might have 

looked like: 

This set of goals might seem to be nothing more than a checklist of all the 

desirable network features. It is important to understand that these goals are in order of 

importance, and an entirely different network architecture would result if the order were 

changed. For example, since this network was designed to operate in a military context, 

which implied the possibility of a hostile environment, survivability was put as a first 

goal, and accountability as a last goal. During wartime, one is less concerned with 

detailed accounting of resources used than with mustering whatever resources are 

available and rapidly deploying them in an operational manner. While the architects of 

the Internet were mindful of [resource] accountability, the problem received very little 

attention during the early stages of the design, and is only now being considered. An 

architecture primarily for commercial deployment would clearly place these goals at the 

opposite end of the list. 

Clark, supra note 25, at 107. 

29 See generally LEINER ET AL., supra note 25. 
15

multiple paths before reaching their destination and then being reassembled.30 This 

process is analogous to the way that the individual, numbered pages of a book might be 

separated from each other, addressed to the same location, forwarded through different 

post offices, and yet all still reach the same specified destination, where they could be 

reassembled into their original form.31

By the mid-1970s, computer scientists had developed several software 

communications standards, or protocols, for connecting computers within the same 

network. At about the same time, ARPANET scientists developed a protocol for 

connecting different networks to each other, called the Transmission Control 

Protocol/Internet Protocol (“TCP/IP”) software suite.32 The TCP component of the suite 

controls the disassembly and reassembly of data packets sent from a computer server, 

where the data resides.33 The IP component specifies the formatting and addressing 

scheme for transmitting data between sender and recipient computers.34

This approach requires that individual networks be connected together by gateway 

interface devices, called switches or routers.35 Thus, interconnected networks are, in 

 

30 See generally JONATHAN E. NUECHTERLEIN & PHILIP J. WEISER, DIGITAL CROSSROADS: AMERICAN 

TELECOMMUNICATIONS POLICY IN THE INTERNET AGE 39-45 (paperback ed., 2007) (comparing circuitswitched and packet-switched networks). 

31 See id. at 42. 

32 Vinton G. Cerf & Robert E. Kahn, A Protocol for Packet Network Intercommunication, 22 IEEE

TRANSACTIONS ON COMM. 637 (1974), available at

http://www.cs.princeton.edu/courses/archive/fall06/cos561/papers/cerf74.pdf. 

33 In the original paper describing the TCP/IP protocol, Cerf and Kahn explain: 

Processes that want to communicate present messages to the TCP for transmission, and 

TCP’s deliver incoming messages to the appropriate destination processes. We allow the 

TCP to break up messages into segments because the destination may restrict the amount 

of data that may arrive, because the local network may limit the maximum transmission 

size, or because the TCP may need to share its resources among many processes 

concurrently. . . . 

From this sequence of arriving packets (generally from different HOSTS 

[computers]), the TCP must be able to reconstruct and deliver messages to the proper 

destination processes. 

Id. at 640. 

34 “Since the GATEWAY [(router)] must understand the address of the source and destination HOSTS, this 

information must be available in a standard format in every packet which arrives at the GATEWAY. This 

information is contained in an internetwork header prefixed to the packet by the source HOST.” Id. at 638. 

“If the TCP is to determine for which process an arriving packet is intended, every packet must contain a 

process header (distinct from the internetwork header) that completely identifies the destination process.” 

Id. at 640. 

35 See id. at 638. 
16

effect, a series of routers connected by transmission links. Packets of data are passed 

from one router to another, via the transmission links. Typically, each router has several 

incoming transmission links through which packets arrive and several outgoing links 

through which the router can send packets. When a packet arrives at an incoming link, 

the router will use a software algorithm to determine the outgoing link through which the 

packet should be routed. If that outgoing link is free, the packet is sent out immediately. 

If the relevant outgoing link is busy transmitting other packets, however, the newly 

arrived packet must wait. Usually, the packet will be temporarily held, or “buffered,” in 

the router’s memory, waiting its turn until the relevant outgoing link is free. Thus, 

buffering is a method of dealing with temporary surges in Internet traffic, which can be 

variable or “bursty.” If too many packets are buffered during a period of congestion, 

however, the router may have no choice but to reroute or drop altogether some of those 

packets.36 Because no transmission mechanism can be completely reliable, computer 

scientists also developed methods of retransmitting data to deal with dropped or 

otherwise incorrectly transmitted packets.37 

Two of the resulting features of this TCP/IP protocol are that it transmits data 

between networks on a “first-in-first-out” and “best-efforts” basis.38 Therefore, although 

the resulting interconnected networks are generally able to transmit data successfully 

 

36 See generally Edward W. Felten, Nuts and Bolts of Network Neutrality 1-2 (AEI-Brookings Joint Center, 

Working Paper No. RP-06-23, 2006), available at http://www.aeibrookings.org/publications/abstract.php?pid=1106. See also Jon M. Peha, The Benefits and Risks of 

Mandating Network Neutrality and the Quest for a Balanced Policy, 34th Research Conference on 

Communication, Information, & Internet Policy 5-6 (2006), available at 

http://web.si.umich.edu/tprc/papers/2006/574/Peha_balanced_net_neutrality_policy.pdf (describing the use 

of algorithms to manage traffic flows across a network). 

37 As Cerf and Kahn explained: 

No transmission can be 100 percent reliable. We propose a timeout and positive 

acknowledgement mechanism which will allow TCP’s to recover from packet losses 

from one HOST to another. . . . [T]he inclusion of a HOST retransmission capability 

makes it possible to recover from occasional network problems and allows a wide range 

of HOST protocol strategies to be incorporated. We envision it will occasionally be 

invoked to allow HOST accommodation to infrequent overdemands for limited buffer 

resources, and otherwise not used much. 

Cerf & Kahn, supra note 32, at 643. 

38 See generally DAVID CLARK ET AL., NEW ARCH: FUTURE GENERATION INTERNET ARCHITECTURE: FINAL 

TECHNICAL REPORT (2003), available at http://www.isi.edu/newarch/iDOCS/final.finalreport.pdf

(sponsored by DARPA Information Technology Office). “The original Internet provided a very simple and 

minimally specified packet transfer service, sometimes called ‘best effort’. Crudely, what ‘best effort’ 

means is that the network makes no specific commitments about transfer characteristics, such as speed, 

delays, jitter, or loss.” Id. at 7. 
17

between senders and receivers using TCP/IP, congestion or other technical issues can 

affect transmission and, as a result, no particular quality-of-service level is guaranteed.39 

Also, during the Internet’s early years, network architectures generally were based 

on what has been called the “end-to-end argument.”40 This argument states that computer 

application functions typically cannot, and should not, be built into the routers and links 

that make up a network’s middle or “core.” Instead, according to this argument, these 

functions generally should be placed at the “edges” of the network at a sending or 

receiving computer.41 This argument also recognizes, however, that there might be 

certain functions that can be placed only in the core of a network. Sometimes, this 

argument is described as placing “intelligence” at or near the edges of the network, while 

leaving the core’s routers and links mainly “dumb” to minimize the potential for 

transmission and interoperability problems that might arise from placing additional 

complexity into the middle of the network.42

Throughout the 1970s and 1980s, the interconnection of computer networks using 

TCP/IP continued to grow, spurred by uses such as e-mail.43 In the mid-1980s, the 

National Science Foundation (“NSF”) recognized that computer networks were having an 

important impact on scientific research by facilitating communications between 

researchers working in different locations. NSF and DARPA had been jointly funding a 

network to connect computer science researchers (“CSNET”) since the late 1970s. In 

1985, NSF announced a plan to connect one hundred universities to the Internet, in 

addition to five already-existing supercomputer centers located around the country.44 

 

39 In the original paper describing the TCP/IP protocol, Cerf and Kahn recognized that because individual 

networks have differing characteristics, “[t]he transmit time for this data is usually dependent upon internal 

network parameters such as communications media data rates, buffering and signaling strategies, routing, 

propagation delays, etc.” Cerf & Kahn, supra note 32, at 637. “The success or failure of a transmission 

and its performance in each network is governed by different time delays in accepting, delivering, and 

transporting the data.” Id. “TCP may need to share its resources among many processes concurrently.” Id. 

at 640. Likewise, resources needed to buffer high volumes of incoming packets may also be “limited.” Id. 

at 643. Thus, “[c]ongestion at the TCP level is flexibly handled owing to the robust retransmission and 

duplicate detection strategy.” Id. at 645. 

40 See, e.g., J.H. Saltzer et al., End-to-End Arguments in System Design, 2 ACM TRANSACTIONS ON 

COMPUTER SYS. 277 (1984). 

41 Id. at 277 (“The argument appeals to application requirements, and provides a rationale for moving 

function upward in a layered system, closer to the application that uses that function.”). 

42 See, e.g., Adam Thierer, Are “Dumb Pipe” Mandates Smart Public Policy? Vertical Integration, Net 

Neutrality, and the Network Layers Model, in NET NEUTRALITY OR NET NEUTERING: SHOULD BROADBAND 

INTERNET SERVICES BE REGULATED? 73, 79 (Thomas M. Lenard & Randolph J. May, eds., 2006). 

43 LEINER ET AL., supra note 25 (“Thus, by 1985, Internet was already well established as a technology 

supporting a broad community of researchers and developers, and was beginning to be used by other 

communities for daily computer communications. Electronic mail was being used broadly across several 

communities . . . .”). 

44 COMER, supra note 24, at 72-76. 
18

Recognizing the increasing importance of this interconnected network to U.S. 

competitiveness in the sciences, however, NSF embarked on a new program with the goal 

of extending Internet access to every science and engineering researcher in the country. 

In 1988, NSF, in conjunction with a consortium of private-sector organizations, 

completed a new long-distance, wide-area network, dubbed the “NSFNET” backbone. 

Although private entities were now involved in extending the Internet, its design 

still reflected ARPANET’s original goals. Although the original ARPANET was 

decommissioned in 1990, its influence continued because TCP/IP had supplanted or 

marginalized most other wide-area computer network protocols in existence at that 

time,45 and because its design, which provided for generality and flexibility, proved to be 

durable in a number of contexts.46 At the same time, its successful growth made clear 

that these design priorities no longer matched the needs of users in certain situations, 

particularly regarding accounting and resource management.47

By 1992, the volume of traffic on NSFNET was approaching capacity, and NSF 

realized it did not have the resources to keep pace with the increasing usage. 

Consequently, the members of the consortium formed a private, non-profit organization 

called Advanced Networks and Services(“ANS”) to build a new backbone with 

transmission lines having thirty times more capacity.48 For the first time, a private 

organization – not the government – principally owned the transmission lines and 

computers of a backbone. 

 At the same time that privately owned networks started appearing, general 

commercial activity on the NSFNET was still prohibited by an Acceptable Use Policy.49 

Thus, the expanding number of privately owned networks were effectively precluded 

from exchanging commercial data traffic with each other using the NSFNET backbone. 

Several commercial backbone operators circumvented this limitation in 1991, when they 

established the Commercial Internet Exchange (“CIX”) to interconnect their own 

backbones and exchange traffic directly. Recognizing that the Internet was outpacing its 

ability to manage it, NSF decided in 1993 to leave the management of the backbone to 

the competing commercial backbone operators. By 1995, this expanding network of 

 

45 LEINER ET AL., supra note 25. 

46 “In the context of its priorities, the Internet architecture has been very successful. The protocols are 

widely used in the commercial and military environment, and have spawned a number of similar 

architectures.” Clark, supra note 25, at 113. 

47 Id.

48 COMER, supra note 24, at 75-76. 

49 “On the NSFNET Backbone – the national-scale segment of the NSFNET – NSF enforced an 

‘Acceptable Use Policy’ (AUP) which prohibited Backbone usage for purposes ‘not in support of Research 

and Education.’” LEINER ET AL., supra note 25. 
19

commercial backbones had permanently replaced NSFNET, effectively privatizing the 

Internet.50

The growth of the Internet has been fueled in large part by the popularity of the 

World Wide Web, created in 1989.51 The number of Web sites on the Internet has grown 

from one in 1989, to 18,000 in 1995, to fifty million in 2004, and to more than one 

hundred million in 2006.52 This incredible growth has been due to several factors, 

including the realization by businesses that they could use the Internet for commercial 

purposes, the decreasing cost and increasing power of personal computers, the 

diminishing complexity of creating Web sites, and the expanding use of the Web for 

personal and social purposes. 

From its creation to its early commercialization, most computer users connected 

to the Internet using a “narrowband” dial-up telephone connection and a special modem 

to transmit data over the telephone system’s traditional copper wirelines, typically at a 

rate of up to 56 kilobits per second (“Kbps”).53 Much faster “broadband” connections 

have subsequently been deployed using a variety of technologies.54 These faster 

technologies include coaxial cable wirelines, upgraded copper digital subscriber lines, 

fiber-optic wirelines, and wireless, satellite, and broadband-over-powerline 

technologies.55

 

50 Michael Kende, The Digital Handshake: Connecting Internet Backbones 5 (FCC Office of Plans and 

Policy, Working Paper No. 32, 2000), available at 

http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp32.pdf. 

51 See generally WORLD WIDE WEB CONSORTIUM, ABOUT THE WORLD WIDE WEB CONSORTIUM (W3C), 

http://www.w3.org/Consortium (last visited June 22, 2007). Other popular uses of the Internet include: the 

transfer of data files from one computer to another through a File Transfer Protocol (“FTP”); electronic 

mail using Simple Mail Transfer Protocol (“SMTP”); and the use of TELetype NETwork (“TELNET”) to 

use one computer to access a different computer at another location. See generally NUECHTERLEIN &

WEISER, supra note 30, at 130. The Internet is often described as being comprised of multiple “layers,” 

including: a physical layer consisting of the hardware infrastructure used to link computers to each other; a 

logical layer of protocols, such as TCP/IP, that control the routing of data packets; an applications layer 

consisting of the various programs and functions run by end users, such as a Web browser that enables 

Web-based e-mail; and a content layer, such as a Web page or streaming video transmission. See id. at 

118-21. 

52 Marsha Walton, Web Reaches New Milestone: 100 Million Sites, CNN, Nov. 1, 2006, 

http://www.cnn.com/2006/TECH/internet/11/01/100millionwebsites/index.html (last visited June 15, 

2007). 

53 See NUECHTERLEIN & WEISER, supra note 30, at 134-35. 

54 See id. at 134-47. Broadband has been defined by the FCC as services that provide transmission speeds 

of 200 Kbps or higher in at least one direction. E.g., FCC, HIGH-SPEED SERVICES, supra note 18, at 5 tbl.1. 

Some critics, however, believe this definition is outdated. See, e.g., G. Sohn, Tr. I at 97 (“[I]t defines 

broadband at a ridiculously slow speed, 200 kilobits per second.”). 

55 See infra Chapter VI for a discussion of various broadband technologies. 
20

The thousands of individual networks that make up the global Internet are owned 

and administered by a variety of organizations, such as private companies, universities, 

research labs, government agencies, and municipalities. Data packets may potentially 

travel from their originating computer server across dozens of networks and through 

dozens of routers before they reach a “last-mile” Internet service provider56 and arrive at 

a destination computer. This process of disassembly, transmission, and reassembly of 

data packets may take as little as a fraction of a second for a simple piece of information 

like a text e-mail traveling along a high-speed network, or it may take several hours for a 

larger piece of information like a high-resolution video traveling a long distance along a 

low-speed network.57

This network of networks connects millions of individuals and organizations in a 

way that allows almost instantaneous communications using computers, computerized 

mobile devices, and other network attachments. End users interact with each other 

through an ever-expanding universe of content and applications, such as: e-mail, instant 

messaging, chat rooms, commercial Web sites for purchasing goods and services, social 

networking sites, Web logs (“blogs”), music and video downloads, political forums, 

voice over IP (“VoIP”) telephony services, streaming video applications, and multiplayer network video games. Internet users include individuals of virtually all ages and 

walks of life, established businesses, fledgling entrepreneurs, non-profit groups, 

academic and government institutions, and political organizations. 

 The TCP/IP protocol suite has been updated periodically since its introduction.58 

In recent years, however, some computer experts and other interested parties have 

questioned the TCP/IP suite’s thirty-year-old first-in-first-out and best-efforts 

characteristics.59 Likewise, in light of the increasing deployment of applications that may 

 

56 See infra Chapter I.B.1 for a discussion of last-mile ISPs. 

57 See, e.g., NUECHTERLEIN & WEISER, supra note 30, at 136. 

58 Kahn & Cerf, supra note 24 (“Refinement and extension of these protocols and many others associated 

with them continues to this day by way of the Internet Engineering Task Force.”). See also INTERNET 

ENGINEERING TASK FORCE, OVERVIEW OF THE IETF, http://www.ietf.org/overview.html (last visited May 

16, 2007) (“The Internet Engineering Task Force (IETF) is a large open international community of 

network designers, operators, vendors, and researchers concerned with the evolution of the Internet 

architecture and the smooth operation of the Internet.”). IETF activities take place under the umbrella of 

the Internet Society. See generally INTERNET SOCIETY, ABOUT THE INTERNET SOCIETY, 

http://www.isoc.org/isoc (last visited May 16, 2007) (The Internet Society “is the organization home for the 

groups responsible for Internet infrastructure standards, including the Internet Engineering Task Force 

(IETF) and the Internet Architecture Board (IAB).”). 

59 E.g., David Farber & Michael Katz, Op-Ed., Hold Off On Net Neutrality, WASH. POST, Jan. 19, 2007, at 

A19 (“The current Internet supports many popular and valuable services. But experts agree that an updated 

Internet could offer a wide range of new and improved services, including better security against viruses, 

worms, denial-of-service attacks and zombie computers; services that require high levels of reliability, such 

as medical monitoring; and those that cannot tolerate network delays, such as voice and streaming video. 

To provide these services, both the architecture of the Internet and the business models through which 

services are delivered will probably have to change.”); Christopher S. Yoo, Network Neutrality and the 

Economics of Congestion, 94 GEO. L.J. 1847, 1863 & n.74 (2006) (noting the opinion of computer scientist 

David Farber that the current Internet architecture is “getting old”). 
21

operate better in a non-end-to-end environment, some have reexamined the end-to-end 

design argument.60 Some also have explored what a next generation Internet architecture 

might look like, with the goal of managing the emerging tension between the Internet’s 

open characteristics and more technologically demanding new applications.61 In 

addition, some observers have suggested that the Internet’s continued exponential growth 

and the proliferation of resource-intensive content and applications like video file sharing 

and the prospect of Internet Protocol television (“IPTV”) may outstrip the Internet’s 

current capacity and cause it to become significantly congested or crash altogether.62

The problem of network congestion, in particular, was recognized in the original 

paper describing the TCP/IP suite and, although it received less attention than 

ARPANET’s other original design priorities, computer scientists continued to be mindful 

of the issue. Some, therefore, continued to explore different transmission protocols and 

the viability of market-based pricing mechanisms through the 1980s and 1990s.63 

Further, as data-routing technologies have advanced in recent years, some network 

operators have begun openly to consider using prioritization and other active 

management practices to improve network management and provide certain premium 

 

60 See, e.g., Marjory S. Blumenthal & David D. Clark, Rethinking the Design of the Internet: The End-toEnd Arguments vs. the Brave New World, 1 ACM TRANSACTIONS INTERNET TECH. 70 (2001) (concluding 

that the open, general nature of the Internet historically associated with the end-to-end argument should be 

preserved); ROBERT E. KAHN, CORPORATION FOR NATIONAL RESEARCH INITIATIVES, INTERNET 

EVOLUTION, GOVERNANCE AND THE DIGITAL OBJECT ARCHITECTURE: WORKSHOP ON SCORM

SEQUENCING AND NAVIGATION 8 (Feb. 23, 2005), available at

http://www.handle.net/presentations_plugfest9/PlugFest9_Plenary_kahn.ppt (discussing whether the 

Federal Network Council’s 1995 Internet definition, see supra note 24, should be updated to also include 

services “integrated with” communications and related infrastructures); Press Release, Stanford Center for 

Internet and Society, The Policy Implications of End-to-End (Dec. 1, 2000), available at

http://cyberlaw.stanford.edu/e2e (workshop chaired by Professor Lawrence Lessig) (“In an increasing 

range of contexts . . . e2e [(end-to-end)] is being questioned. Technologies that undermine e2e are 

increasingly being deployed; other essential services, such as quality of service, are being developed in 

ways that are inconsistent with e2e design.”). 

61 E.g., CLARK ET AL., supra note 38, at 4 (“The goal of this project was to consider the following question: 

if we could now design the Internet from scratch, knowing what we know today, how would we make the 

basic design decisions?”). 

62 E.g., DELOITTE TOUCHE TOHMATSU, TELECOMMUNICATIONS PREDICTIONS: TMT TRENDS 2007 (2007), 

available at

http://www.deloitte.com/dtt/cda/doc/content/us_tmt_%202007_Telecom_Predictions_011606.pdf. 

According to this report, “[o]ne of the key possibilities for 2007 is that the Internet could be approaching its 

capacity. The twin trends causing this are an explosion in demand, largely fueled by the growth in video 

traffic and the lack of investment in new, functioning capacity.” Id. at 4. 

63 E.g., Jeffrey K. MacKie-Mason & Hal R. Varian, Pricing the Internet, in PUBLIC ACCESS TO THE 

INTERNET 269 (Brian Kahin & James Keller eds., 1995). According to MacKie-Mason and Varian: 

“Congestion is likely to be a serious problem in the future Internet, and past proposals to control it are 

unsatisfactory. We think an economic approach to allocating scarce Internet resources is warranted.” Id. at 

284. “Our objective is not to raise profits above a normal rate of return by pricing backbone usage. Rather, 

our goal is to find a pricing mechanism that will lead to the most efficient use of existing resources, and 

will guide investment decisions appropriately.” Id. 
22

services for a fee.64 As a result, computer scientists, network operators, content and 

applications providers, and other interested parties have increasingly debated the 

significance of the Internet’s historical and current architecture and its implications for 

the Internet’s future development.65

 

64 See, e.g., At SBC, It’s All About “Scale and Scope,” BUS. WK., Nov. 7, 2005, 

http://www.businessweek.com/@@n34h*IUQu7KtOwgA/magazine/content/05_45/b3958092.htm

(interview with SBC Telecommunications’ CEO Edward Whitacre). According to Whitacre: 

[T]here's going to have to be some mechanism for these people who use these pipes to 

pay for the portion they're using. Why should they be allowed to use my pipes? 

 The Internet can't be free in that sense, because we and the cable companies 

have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to 

use these pipes [for] free is nuts! 

Id. See also Marguerite Reardon, Qwest CEO Supports Tiered Internet, ZDNET NEWS, Mar. 15, 2006, 

http://articles.techrepublic.com.com/2100-1035_11-6050109.html. Qwest CEO Richard Notebaert has 

stated his company would like to offer prioritized data transmission in the same way that express parcel 

service may be purchased from Federal Express or UPS. In his view, “[i]t’s possible that (these companies) 

would like to have differentiated service. . . . And if you have enough money, we can make a lot of things 

happen.” Id. “Would this give some content providers an advantage over others? . . . Well, yeah. We’re 

all trying to provide a bit of differentiation for a competitive edge. That’s what business is about.” Id. 

65 For example, some of the Internet’s early designers have offered the following account: 

One should not conclude that the Internet has now finished changing. The 

Internet, although a network in name and geography, is a creature of the computer, not 

the traditional network of the telephone or television industry. It will, indeed it must, 

continue to change and evolve at the speed of the computer industry if it is to remain 

relevant. It is now changing to provide such new services as real time transport, in order 

to support, for example, audio and video streams. The availability of pervasive 

networking (i.e., the Internet) along with powerful affordable computing and 

communications in portable form (i.e., laptop computers, two-way pagers, PDAs, cellular 

phones), is making possible a new paradigm of nomadic computing and communications. 

This evolution will bring us new applications – Internet telephone and, slightly 

further out, Internet television. It is evolving to permit more sophisticated forms of 

pricing and cost recovery, a perhaps painful requirement in this commercial world. It is 

changing to accommodate yet another generation of underlying network technologies 

with different characteristics and requirements, from broadband residential access to 

satellites. New modes of access and new forms of service will spawn new applications, 

which in turn will drive further evolution of the net itself. 

The most pressing question for the future of the Internet is not how the 

technology will change, but how the process of change and evolution itself will be 

managed. As this paper describes, the architecture of the Internet has always been driven 

by a core group of designers, but the form of that group has changed as the number of 

interested parties has grown. With the success of the Internet has come a proliferation of 

stakeholders – stakeholders now with an economic as well as an intellectual investment 

in the network. We now see, in the debates over control of the domain name space and 

the form of the next generation IP addresses, a struggle to find the next social structure 

that will guide the Internet in the future. The form of that structure will be harder to find, 

given the large number of concerned stake-holders. At the same time, the industry 
23

B. Major Internet Components 

1. “Last-Mile” Internet Service Providers 

“Last-mile”66 Internet service providers offer the network connections that link 

end users to the wider Internet.67 By connecting its end-user customers to the many 

networks comprising the Internet backbone, an ISP provides its customers access to the 

end-user computers of any other ISP in the world connected to that backbone. Computer 

users in the United States have had nearly ubiquitous last-mile access to dial-up Internet 

connections of 56 to 280 Kbps since the late 1990s through telephone modems.68 In 

recent years, faster broadband connections have supplanted dial-up service for a rapidly 

growing number of computer users who demand faster access to the increasingly 

sophisticated and data-rich content and applications available on the Internet.69 

Principally, end users receive last-mile broadband Internet service through coaxial cable 

wireline or upgraded copper digital subscriber wireline connections; other platforms, 

such as fiber-optic wirelines, wireless, satellite, and broadband over powerlines, are also 

increasingly available to connect end users to the Internet.70

Basic residential service packages are typically available on a flat-rate basis to 

home computer users.71 ISPs may require that end users with more demanding needs, 

like a medium or large business, purchase a business-class or other type of premium 

 struggles to find the economic rationale for the large investment needed for future 

growth, for example to upgrade residential access to more suitable technology. If the 

Internet stumbles, it will not be because we lack for technology, visions, or motivation. It 

will be because we cannot set a direction and march collectively into the future. 

LEINER ET AL., supra note 25. 

66 Networks that connect end users to the broader Internet are generally referred to as “last-mile” ISPs. 

Networks that transmit data from a content or applications provider’s computer server(s) to the broader 

Internet are sometimes referred to as “first-mile” ISPs. 

67 Today, major last-mile wireline broadband ISPs include: AT&T, Comcast, Covad, Cox 

Communications, and Verizon. Major wireless broadband ISPs include: AT&T, Sprint Nextel, T-Mobile, 

and Verizon Wireless. 

68 See NUECHTERLEIN & WEISER, supra note 30, at 134-35. 

69 See id. at 134-47. 

70 According to the most recent data available from the FCC, most broadband consumers access the Internet 

today by cable modem or DSL. Of the 64.6 million high-speed lines in the United States as of June 30, 

2006, 44.1% were cable modem, 36.4% DSL or other high-speed telephone line, 17.0% mobile wireless, 

1.1% fiber-to-the-premise, 0.8% satellite, 0.5% fixed wireless, and 0.01% broadband over powerlines (and 

other lines). FCC, HIGH-SPEED SERVICES, supra note 18, at 5 tbl.1. 

71 See generally Lehr, Tr. I at 37 (discussing “the market’s current attraction to . . . flat-rate pricing”); 

Brenner, Tr. II at 96. See also, e.g., VERIZON, VERIZON HIGH SPEED INTERNET, 

http://www22.verizon.com/content/consumerdsl/plans/all+plans/all+plans.htm (last visited May 17, 2007). 
24

service package.72 In addition, end users can purchase for a premium fee access to a 

specialized virtual private network (“VPN”) offering a defined quality-of-service level 

over a reserved portion of an ISP’s network.73

Last-mile broadband wireline architecture can take various forms. A last-mile 

ISP can extend a fiber-optic wireline from a backbone connection to either a 

neighborhood node, to the curb of a premise, or all the way to the end user’s premise. If 

the fiber runs only to the node or curb, the ISP can then use a cable or DSL connection 

for the remaining distance to the end user’s premise.74 DSL wirelines provide a 

dedicated amount of bandwidth to each end user, but can transmit data up to only about 

three miles without the use of a repeater. Accordingly, transmission speeds can vary 

depending on an end user’s distance from a repeater.75 Cable wirelines offer shared 

bandwidth among many customers. Thus, the transmission speed for an individual cable 

modem customer can vary with the number of customers who are using the network 

simultaneously.76

 Last-mile wireless networks using wireless fidelity (“Wi-Fi”) or worldwide 

interoperability for microwave access (“Wi MAX”) technologies can be set up by 

deploying multiple antennas on street lights, traffic signals, and buildings, so that 

multiple wireless hotspots overlap each other to form a continuous “mesh” network of 

wireless signals. An initial connection to a backbone network also must be made in order 

to provide access to the wider Internet.77 Several major telecommunications companies 

also offer mobile wireless Internet services over their wireless phone networks.78 Three 

satellite providers offer broadband Internet service via satellite.79 An end user must have 

a computer or other device that is configured for wireless Internet use to access these 

 

72 E.g., COMCAST, COMCAST WORKPLACE, http://www.comcast.com/wa-business/internet.html (last visited 

May 14, 2007). Last-mile access for large enterprise customers, particularly those with multiple locations, 

typically involves the use of dedicated, high-capacity facilities often referred to as special access or 

dedicated access services. See In re Special Access Rates for Price Cap Local Exch. Carriers, 20 FCC Rcd 

1994, 1995-96 (2005) (order and notice of proposed rulemaking) [hereinafter Special Access NPRM]. 

73 See, e.g., CHARLES B. GOLDFARB, ACCESS TO BROADBAND NETWORKS: CONGRESSIONAL RESEARCH 

SERVICE REPORT TO CONGRESS 10-11 (2006), available at

http://www.ipmall.info/hosted_resources/crs/RL33496_060629.pdf. 

74 Id. at 9-11. 

75 See generally FCC, FCC CONSUMER FACTS: BROADBAND ACCESS FOR CONSUMERS, 

http://www.fcc.gov/cgb/consumerfacts/dsl2.html (last visited June 22, 2007). 

76 See generally id. 

77 Wireless broadband providers that do not have their own facilities connecting their transmitters (e.g., cell 

towers) to their switches typically purchase special access services from an incumbent local exchange 

carrier or other provider of such services. See Special Access NPRM, 20 FCC Rcd at 1995-96. 

78 GOLDFARB, supra note 73, at 10. 

79 Id. at 10-11. 
25

networks. In addition, there are now over forty deployments of broadband–overpowerline technologies in the U.S., most of which are in trial stages.80

 Today’s last-mile networks generally are partitioned asymmetrically to provide 

more bandwidth for data traveling from an ISP’s facilities to the end user’s computer 

(“downstream”) than in the other direction (“upstream”). Typically, this is done because 

end users request much more data from other server computers than they, themselves, 

send out.81 As a result, asymmetric architecture may constrain content and applications 

that require the end user simultaneously to send and receive content at the same speeds 

and volumes, such as two-way video transmissions.82 Also, ISPs have the technical 

capability to reserve portions of last-mile bandwidth for specific applications.83

2. Internet Backbone Operators 

Since 1995, when the expanding number of commercial backbone networks 

permanently replaced NSFNET, commercial backbones have generally interconnected 

with each other through voluntary, market-negotiated agreements.84 To this day, there 

are no general, industry-specific regulations that govern backbone interconnection in the 

U.S.85 Instead, commercial backbone operators independently make decisions about 

interconnection by weighing the benefits and costs on a case-by-case basis.86 Typically, 

 

80 Id. at 11-12. 

81 Id. at 4, 9. 

82 Id. at 9. 

83 For example, Verizon reserves one fiber of its downstream fiber-to-the-home service specifically for the 

company’s video service, while a separate fiber carries all other incoming traffic. Id. at 10. AT&T 

reserves 19 of 25 megabits of downstream end-user bandwidth specifically for the company’s video 

service. Id. at 11. AT&T customers can purchase between 1.5 and 6 Mbps of the remaining downstream 

bandwidth for Internet access and voice services. Id. 

84 Observers have noted that: 

Particularly in the Internet’s early days, many backbone providers exchanged traffic at 

government-sponsored Network Access Points (NAPs)–the Internet’s equivalent to 

public airports, where the routes of many different carriers converge. (When the 

government privatized the Internet, it transferred control of these points to commercial 

providers.) Internet backbone providers now increasingly rely on privately arranged 

points of interconnection, largely because of congestion at the NAPs. 

NUECHTERLEIN & WEISER, supra note 30, at 132. 

85 See generally id. at 133 (“These peering and transit agreements are completely unregulated. Neither the 

FCC nor any other governmental authority regulates the prices that a larger backbone network may charge 

a smaller one for transit services or mandates that backbone providers interconnect at all.”). 

86 As one commentator notes: 

Currently, there are no domestic or international industry-specific regulations that govern 

how Internet backbone providers interconnect to exchange traffic, unlike other network 
26

backbones connect to each other under one of two types of arrangements. In a “peering” 

arrangement, backbones of similar size engage in a barter arrangement in which 

backbone A carries traffic for backbone B in exchange for backbone B carrying a similar 

amount of traffic for backbone A. In this arrangement, exchanged traffic generally is 

destined only for the other backbone’s end users. In a “transit” arrangement, a smaller 

backbone pays a larger backbone to carry its customers’ traffic to all end users on the 

Internet.87 To date, market forces have encouraged interconnection among backbones 

and between backbones and last-mile ISPs.88

 Today, these backbones make up the core or “middle” of the Internet. Generally, 

individual backbone networks are made up of a multiplicity of redundant, high-speed, 

high-capacity, long-haul, fiber-optic transmission lines that join at hubs or points of 

interconnection across the globe.89 Transmission over the backbone is generally reliable 

even when one component fails because there are multiple different routes of 

transmission from one computer to another.90 A backbone’s customers include ISPs 

providing last-mile connectivity to end users, providers of content and applications that 

wish to connect their computer servers directly to a backbone, and specialized companies 

that lease space on shared or dedicated computer servers to smaller content and 

applications providers. 

3. Providers of Content and Applications 

Millions of organizations and individuals connected to the Internet’s edges 

provide an ever-expanding universe of content and applications to end users. 

Commercial entities and other organizations provide a large portion of such content and 

applications, but individuals are increasingly contributing content and applications to the 

Internet for personal, social, and creative purposes.91

 services, such as long distance voice services, for which interconnection is regulated. 

Rather, Internet backbone providers adopt and pursue their own interconnection policies, 

governed only by ordinary laws of contract and property, overseen by antitrust rules. 

Kende, supra note 50, at 2. 

87 See generally NUECHTERLEIN & WEISER, supra note 30, at 132-33. 

88 Cf. Ryan, Tr. I at 237. 

89 NUECHTERLEIN & WEISER, supra note 30, at 131-38. See also Li Yuan & Gregory Zuckerman, Level 3 

Regains Luster Amid Web-Video Boom, WALL ST. J., Dec. 21, 2006, at C1 (providing a map of Level 3’s 

fiber-optic backbone). Today, major U.S. backbone operators include: Verizon, AT&T, Global Crossing, 

Level 3, Qwest, SAVVIS, and Sprint-Nextel. 

90 COMER, supra note 24, at 137-42. 

91 Popular examples include: Blogger.com (Web logs); flickr.com (photo sharing); YouTube.com (audio 

and video files); and MySpace.com (social networking pages, Web logs, photo sharing, audio and video 

files). See also Lev Grossman, Time’s Person of the Year: You, TIME, Dec. 25, 2006, at 38, available at

http://www.time.com/time/magazine/article/0,9171,1569514,00.html. 
27

Content and applications providers use various methods to distribute their 

offerings over the Internet. Smaller organizations and individuals typically lease space 

on a shared or dedicated computer server from a specialized company that provides a 

connection to the wider Internet, typically through a negotiated agreement with a 

backbone operator.92 Large companies may build their own server farms with direct 

access to an Internet backbone.93 Some companies also provide Web sites where users 

can post self-generated content, such as photos, blogs, social networking pages, and audio 

and video files, while the companies themselves manage the site’s underlying technical 

aspects.94 Increasingly, content and applications providers are also copying their content 

and applications to multiple computer servers distributed around the world, a technique 

called local caching.95 This practice allows data to be transmitted to end users more 

quickly, over a shorter physical distance, and using fewer routers. This strategy, in turn, 

generally decreases the potential for transmission problems such as the delay or dropping 

of data packets.96

Today, many applications can be delivered from a provider’s computer server via 

the Internet to a customer’s computer and installed automatically. This ability to transmit 

applications cheaply and directly to end users allows applications providers to update 

their programs frequently and to deliver new versions to customers quickly. Likewise, 

the Internet allows content providers to transmit cheaply an expanding array of content, 

such as music and video downloads. 

 Originally, most Web content consisted of static text and graphics files that could 

be viewed graphically using a basic Web browser and a narrowband connection. Some 

of the newest content and applications, however, are time-sensitive, bandwidth-intensive, 

or both. VoIP, for example, is sensitive to both “latency” – the amount of time it takes a 

packet of data to travel from source to destination – and “jitter” – on-again, off-again 

 

92 See, e.g., TheHostingChart, http://www.thehostingchart.com (last visited June 22, 2007). 

93 See, e.g., Pepper, Tr. I at 93. Pepper notes that “a lot of these large providers made enormous 

investments in big server farms to bring content closer to consumers with their caching servers. Bringing 

content closer to consumers reduces the need to go across multiple hops [between networks].” Id. See also 

Yoo, supra note 59, at 1881-83; John Markoff & Saul Hansell, Hiding in Plain Sight, Google Seeks More 

Power, N.Y. TIMES, June 14, 2006, at A1, available at 

http://www.nytimes.com/2006/06/14/technology/14search.html?ei=5090&en=d96a72b3c5f91c47&ex=130

7937600. 

94 See supra note 91. 

95 Content and applications providers may construct multiple server farms in various locations. See supra

note 93. Alternatively, they can contract with a third party to manage this function. See, e.g., Misener, Tr. 

II at 191 (“Essentially, you have a company that has set up edge serving facilities. That is to say server 

farms outside major metropolitan areas.”). See also Yoo, supra note 59, at 1881-83; William C. Symonds, 

Traffic Cops of the Net, BUS. WK., Sept. 25, 2006, at 88, available at

http://www.businessweek.com/magazine/content/06_39/b4002094.htm (profiling third-party content 

distribution company Akamai Technologies). 

96 See Pepper, Tr. I at 93; Yoo, supra note 59, at 1882. 
28

delay associated with bursts of data traffic.97 High-resolution video files and streaming 

video applications are examples of bandwidth-intensive content and applications that 

some observers suggest are already challenging the Internet’s capacity.98

C. Network Management, Data Prioritization, and Other Forms of Data 

“Discrimination” 

The differential treatment of certain data packets by network operators, such as 

prioritizing some packets over others, is often referred to as data “discrimination.”99 This 

Section addresses Internet congestion (one of the primary reasons cited for engaging in 

such data discrimination), the various types and uses of data discrimination, and the 

feasibility of end users detecting and avoiding certain types of data discrimination. 

1. Internet Congestion 

As explained above, the problem of network congestion has been recognized 

since the Internet’s earliest days. Network resources such as computer processing power, 

transmission media, and router buffer memory are finite, like other resources. 

Congestion, therefore, can occur at any point on the Internet. Of course, end users can 

purchase more powerful computers and network operators can expand the capacity of 

their networks, but the computers, physical transmission media, and routers that comprise 

the Internet can still transport and process only a certain amount of data at any given 

time. Although it happens rarely, if too many computers send bursts of packets at the 

same time, a network may become temporarily overloaded. 

The TCP/IP protocol generally has enabled the Internet to function at a workable 

level, even as Internet use has undergone tremendous growth during the last decade.100 

Nonetheless, Internet transmissions are still subject to variable performance and periods 

of congestion. Some observers suggest that the use of bandwidth-intensive applications 

like certain peer-to-peer file-sharing protocols by even a small minority of users is 

already consuming so many network resources as to be worrisome. This situation is of 

particular concern to some experts, who believe that the use of such applications by even 

a small portion of Internet users may effectively degrade service for the remaining 

 

97 See, e.g., Blumenthal & Clark, supra note 60, at 72-73; GOLDFARB, supra note 73, at 2-3 & n.4. 

98 See, e.g., GOLDFARB, supra note 73, at 3-4. 

99 “Unfortunately, engineers, economists, and lawyers have different definitions for discrimination.” Peha, 

supra note 36, at 3. Some technology experts distinguish between so-called “minimal” or “needs-based” 

discrimination, where packets are discarded or otherwise treated differently only when absolutely necessary 

(as in the case of congestion), and “non-minimal” or “active” discrimination, where packets are treated 

differently for some other, discretionary reason. See, e.g., Felten, supra note 36, at 4. The introduction to 

Chapter IV below includes a discussion of how we use the term “discrimination” in analyzing the potential 

effects on consumer welfare of various conduct by ISPs and other network operators. 

100 COMER, supra note 24, at 165-69. 
29

majority of end users.101 Some observers suggest that such applications are already 

testing the Internet’s existing capacity and may even potentially crash the Internet, or 

parts of it.102

 2. Alleviating Internet Congestion 

Several techniques have been used to alleviate short-term Internet congestion. 

Non-linear packet switching enables data to be dispersed and, in turn, allows networks to 

reroute individual data packets around points of congestion and avert delays. The TCP 

component of the TCP/IP suite also monitors delays and slows the packet-transmission 

rates accordingly.103 Some applications, however, such as certain peer-to-peer filesharing protocols, operate in a different manner. When congestion occurs, these 

applications do not slow their rates of data transmission. Rather, they aggressively take 

advantage of TCP’s built-in reduction mechanism and, instead, send data as fast as they 

can.104 Therefore, some networks have actively restricted or blocked altogether these 

kinds of applications, on the grounds that the networks need to preserve an equitable 

level of service for the majority of their end users. 

Networks may also use “hot potato” routing policies that hand off to other 

networks at the earliest possible point data that is not destined for termination on their 

own networks, thus reducing the use of network resources.105 Local caching of data by 

content and applications providers further helps to alleviate congestion by reducing the 

 

101 According to Peha, “[t]raffic from a very small number of users can dominate the network and starve 

everybody else out. Peer-to-peer, in particular, is a problem today, and other applications might come 

along. ” Peha, Tr. I at 22. See also SANDVINE, INC., NETWORK NEUTRALITY: A BROADBAND WILD WEST?

4 (2005), available at http://www.sandvine.com/general/getfile.asp?FILEID=37 (reporting that it is 

common for less than 20% of users/applications/content to consume 80% of a network’s resources); 

ANDREW PARKER, CACHELOGIC, P2P IN 2005 (2005), available at

http://www.cachelogic.com/home/pages/studies/2005_01.php (reporting that in 2004 peer-to-peer traffic 

constituted 60% of overall Internet data traffic and 80% of upstream data traffic); Press Release, Sandvine, 

Inc., EDonkey – Still King of P2P in France and Germany (Sept. 13, 2005), available at

http://www.sandvine.com/news/pr_detail.asp?ID=88 (reporting that P2P file-sharing traffic in the UK and 

North America represents up to 48% of all downstream bandwidth and 76% of all upstream traffic). 

102 See, e.g., Brenner, Tr. II at 99 (recounting that “[w]e all know the famous story of downloading the 

Victoria’s Secret streaming video when so much demand was placed on it, nobody could get a download”). 

Beyond this oft-cited example, however, staff has not been presented with any specific evidence of an 

instance where a significant portion of the Internet has substantially crashed, apart from general examples 

of temporary network congestion. See also DELOITTE TOUCHE TOHMATSU, supra note 62, at 4. 

103 TCP sends and receives acknowledgements each time a packet is sent to and received from a computer. 

Also, TCP automatically starts a timer whenever a computer sends a packet. The timed period depends on 

the distance to the recipient computer and delays on the Internet. If the timer runs out before the sending 

computer receives an acknowledgement, TCP retransmits the packet and lengthens the timed period to 

accommodate the network delay, effectively slowing the transmission rate. Once enough computers in the 

network slow down, the congestion clears. See COMER, supra note 24, at 140-41. 

104 Peha, supra note 36, at 7. 

105 NUECHTERLEIN & WEISER, supra note 30, at 132. 
30

distance over which data must travel and the number of routers that might potentially 

delay or drop packets. In addition, as discussed below, some networks have proposed 

prioritizing data and providing other new types of quality-of-service assurances to 

alleviate the effects of congestion. 

3. Packet-inspection and Flow-control Technologies 

 To treat some data packets differently than others, as opposed to simply using a 

first-in-first-out and best-efforts approach, a network operator must be able to identify 

certain relevant characteristics of those packets.106 One source of identifying information 

is the packet’s header, which contains the IP address of its source and destination. The 

packet header also contains several types of information that suggest the type of 

application required to open the data file, such as the source and destination port 

numbers, the transport protocol, the differentiated service code point or traffic class, and 

the packet’s length.107 Additionally, the header contains the Media Access Control 

(“MAC”) address of the packet’s source and destination, which provides information 

about the manufacturer of the device attached to the network.108

In recent years, router manufacturers have refined packet-inspection technologies 

to provide network operators with a wide range of information about the data traffic on 

their networks, including information not provided in packet headers.109 These 

technologies were developed in part to help local area networks direct traffic more 

efficiently and to thwart security risks.110 Deep packet inspection may also be 

implemented on the Internet to examine the content of packet streams – even search for 

keywords in text – and to take action based on content- or application-specific policies.111 

Such actions could involve tracking, filtering, or blocking certain types of packet streams. 

Further, deep packet inspection can map the information it accumulates to databases 

containing, for instance, demographic or billing information.112

 

106 Peha, supra note 36, at 3 (discussing the criteria that networks can consider when deciding how to 

prioritize packets). 

107 Id. at 4. Some computer scientists believe that port numbers have become an unreliable tool for 

determining a packet’s associated application. According to Peha, “[o]nce upon a time, you could learn 

who the application was, through something called a port number, but that hasn't been reliable or 

meaningful for a number of years.” Peha, Tr. I at 18. 

108 Peha, supra note 36, at 4. 

109 See, e.g., Pepper, Tr. I at 83-87. 

110 E.g., Tim Greene, The Evolution of Application Layer Firewalls, NETWORK WORLD, Feb. 2, 2004, 

available at http://www.networkworld.com/news/2004/0202specialfocus.html (“Now the latest Internet 

defense technology – deep packet inspection firewalls – is being touted as the best line of defense against 

worms that can sneak past earlier technology to wreck havoc in corporate networks.”). 

111 Peha, supra note 36, at 4-5. 

112 Id.
31

Another relatively new technology that may be implemented to reveal information 

about packet streams is flow classification. This technology monitors the size of packets 

in a data stream, the time elapsed between consecutive packets, and the time elapsed 

since the stream began, with the goal of making reasonable determinations about the 

nature of the packets in the stream. Thus, flow classification may reveal information 

about a packet stream even if the individual packets themselves are encrypted against 

packet inspection.113 With the development of these two technologies, it is now costeffective for a network operator to gain extensive knowledge about the nature of the data 

traveling across its network.114

4. Data Prioritization and Other Forms of Data Discrimination 

Recently, some network operators have suggested that they would like to use 

these new technologies to prioritize certain data traffic or to provide other types of 

quality-of-service assurances to content and applications providers and/or end users in 

exchange for a premium fee.115 In contrast to the practice of transmitting data on a firstin-first-out and best-efforts basis, network operators could use a router algorithm to favor 

the transmission of certain packets based on characteristics such as their source, 

destination, application type, or related network attachment. One or more of these 

strategies could be employed to manage network traffic generally. Or, they might be 

used by a network operator to actively degrade certain non-favored traffic. 

Packets going to or from certain favored addresses could be given priority 

transmission. Likewise, network operators could give priority to packets for latencysensitive applications such as VoIP or network video games. In the alternative, routers 

could be programmed to reroute, delay, or drop certain packets.116 For example, a 

network operator could block packets considered to be a security threat.117 It could drop 

or otherwise delay packets associated with unaffiliated or otherwise disfavored users, 

content, or applications.118 A network could apply such treatment only in certain 

 

113 Id. at 4. For example, if a network operator detects a steady stream of packets flowing at 30 Kbps across 

its network for a period of time, it might conclude those packets are part of a VoIP telephony transmission. 

Id. 

114 Id. at 5. 

115 See supra note 64. Quality of service “typically involves the amount of time it takes a packet to traverse 

the network, the rate at which packets can be sent, and the fraction of packets lost along the way.” Peha, 

supra note 36, at 5. 

116 E.g., Peha, supra note 36, at 4-6. 

117 E.g., Craig McTaggart, Was the Internet Ever Neutral?, 34th Research Conference on Communication, 

Information, & Internet Policy 9 (2006), available at

http://web.si.umich.edu/tprc/papers/2006/593/mctaggart-tprc06rev.pdf (discussing blocking as a tool to 

control network abuse). 

118 E.g., Peha, supra note 36, at 12–13 (describing scenarios in which network operators might block rival 

services, specific content, or software). 
32

circumstances, such as during periods of congestion, after a quota of packets has been 

met, or, until certain usage fees are paid.119 Some observers, however, question whether 

implementing wide-scale prioritization or similar schemes across multiple networks 

having differing technical characteristics is, in fact, even technically possible.120

Network operators also could provide separate physical or logical channels for 

different classes of traffic.121 Another method for favoring certain Internet traffic is to 

reserve capacity on last-mile bandwidth for certain packet streams to provide a minimum 

level of quality.122 Similarly, a network operator could limit the amount of bandwidth 

available to an end user, thereby degrading or effectively blocking altogether the use of 

 

119 See, e.g., id. at 5-6. 

120 See, e.g., Alcatel-Lucent, Public Comment 1. According to Alcatel-Lucent, an opponent of network 

neutrality regulation: 

[I]ndustry standards would have to be adopted that put in place common policies for the 

labeling and prioritization of data packets. . . . The vast majority of Internet traffic must 

traverse the networks of numerous broadband service providers. This means that in order 

to favor the traffic of Service A over Service B during its entire trip through the Internet, 

each service provider and backbone network would have to prioritize and label packets in 

exactly the same way – a scenario that does not exist today. The idea that a service 

provider could maintain priority routing for its “preferred data packets” between a user in 

Washington, DC and Los Angeles, CA is not possible absent a comprehensive agreement 

between all network service providers to treat and identify data packets based on a 

common standard not currently in existence. Absent such developments, the data would 

almost certainly change hands at least once, likely stripping it of any prioritization it 

might have enjoyed inside the network of a sole provider. 

Id. at 5. Likewise, a representative of Google, a network neutrality proponent, states that: 

[L]ast mile providers who want to give some sort of priority service, you know, only 

have control over their own network. It’s not obvious to us how you can offer this kind 

of end-to-end service. It’s not obvious to us how you identify the traffic in order to 

segregate it, that you’re going to give priority to. And how do you do this segregation 

without degrading other traffic? 

Davidson, Tr. I at 230-31. 

121 For example, a network operator could physically send favored data traffic over a lightly used 

connection, while sending other data traffic over a more heavily used connection. Or, the network could 

use logical separation to send traffic on the same physical connection, but use different service flows, as in 

the case of a virtual local network (“VLN”). Peha, supra note 36, at 6. 

122 For example, AT&T’s Project Lightspeed and Verizon’s FiOS services reserve portions of last-mile 

bandwidth for their proprietary video services. GOLDFARB, supra note 73, at 10-11, 17-18. These network 

operators also could sell reserved capacity to content or applications providers in return for a quality-ofservice guarantee. Verizon, for example, has such plans for its FiOS service. Id. at 10. 
33

bandwidth-intensive content or applications.123 A network operator also could treat data 

packets differently by providing preferential access to services, such as local caching.124

Data also can be treated differently through the use of pricing structures, such as 

service tiers, to provide a certain quality-of-service level in exchange for payment.125 In 

a fee-for-priority system, content and applications providers and/or end users paying 

higher fees would receive quicker, more reliable data transmissions. Sometimes, such an 

arrangement is referred to as a “fast lane.” Other data might simply be provided on a 

best-efforts basis. Similarly, a network operator might assess fees to end users based on 

their behavior patterns, a practice sometimes referred to as “content billing” or “content 

charging.”126

5. Detecting Data Discrimination127

Although differential data treatment may be easy to detect in some instances, like 

outright blocking, in many instances it may be more difficult for an end user to 

distinguish between performance problems resulting from deliberate discrimination and 

problems resulting from other, more general causes.128 For example, an end user whose 

Internet traffic is treated differently than other traffic might experience poor performance 

in one or more aspects, such as delays in transmitting data, delays in using applications, 

or sporadic jitter. Such effects, however, can also result from general network 

 

123 See Network Neutrality: Competition, Innovation, and Nondiscriminatory Access: Hearing Before the S. 

Comm. on Commerce, Sci., & Transp., 109th Cong. 13 (2006) (testimony of Earl W. Comstock, President 

and CEO, COMPTEL), available at http://www.digmedia.org/docs/comstock-020706.pdf. 

124 Id. at 14. 

125 Peha, supra note 36, at 6. 

126 Id. 

127 The difficulties associated with end-user detection of data discrimination discussed in this Section would 

appear to be equally applicable to enforcement of any network neutrality regulation that prohibited data 

discrimination by ISPs and other network operators. 

128 See, e.g., Pepper, Tr. I at 93. According to Pepper: 

[T]here are techniques that consumers actually have readily available to them to test their 

own bandwidth and performance latency between . . . the home, or the office, and the 

first POP [(point of presence)], right? 

And so, those techniques are actually relatively available. The problem is that, 

depending on the service you’re trying to download, the application that you’re using, it 

may – you may be going through two or three hops [between networks], or as many as a 

dozen hops across the Internet. When you go across multiple hops across multiple 

networks, it’s more difficult for a consumer to know. 

Id. See also Brenner, Tr. II at 98 (“[T]here are many points between the key strokes of the customer and 

the download in which the speed can be affected.”). 
34

congestion.129 Distinguishing the two may be particularly difficult for end users not 

possessing a technical background. Researchers, however, are working to develop 

diagnostic tools to detect the differential treatment of data.130

6. Potential End-user Responses to Data Discrimination 

a. Bypassing Discriminatory Networks 

Some computer experts have suggested that the prospect of networks treating 

some data differently than others might give rise to a kind of arms race between network 

operators seeking to employ technical measures to manage their networks and end users 

seeking to employ countermeasures to avoid them.131 They suggest, for example, that 

end users can bypass networks to a limited degree through cooperative access sharing.132 

On a small scale, a group of neighbors with access to multiple, distinct broadband 

Internet service providers might each set up an open-access Wi-Fi router, giving 

everyone in the group access to each other’s service provider. If one provider engages in 

data discrimination, members of the cooperative could bypass it by accessing the Internet 

through another provider in the pool. Such a strategy, however, depends on a last-mile 

network operator allowing the use of open-access Wi-Fi access points in the first place.133 

To the extent that last-mile networks allow the resale of their services through openaccess wireless networks, competition from resellers might have a similar effect.134 

Alternatively, a municipality might set up its own wireline or wireless network if its 

residents are not satisfied with the service provided by private providers. It is 

conceivable, however, that a municipal network could also engage in certain practices 

that some of its residents consider to be discriminatory.135

 

129 See, e.g., Felten, supra note 36, at 4. 

130 Robert McMillan, Black Hat: Researcher Creates Net Neutrality Test, COMPUTERWORLD, Aug. 2, 2006, 

available at

http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9002154. 

131 See generally William H. Lehr et al., Scenarios for the Network Neutrality Arms Race, 34th Research 

Conference on Communication, Information, & Internet Policy (2006), available at

http://web.si.umich.edu/tprc/papers/2006/561/TPRC2006_Lehr%20Sirbu%20Peha%20Gillett%20Net%20

Neutrality%20Arms%20Race.pdf. See also Lehr, Tr. I at 52. 

132 Lehr et al., supra note 131, at 10-13. See also Lehr, Tr. I at 41-43. 

133 Lehr et al., supra note 131, at 10-13. 

134 Id. at 13-14 (describing the Wi-Fi resale business model of FON); Lehr, Tr. I at 42-43. See also FON, 

What’s FON, http://www.fon.com/en/info/whatsFon (last visited May 14, 2007). 

135 Lehr et al., supra note 131, at 15; Lehr, Tr. I at 43. 
35

b. Technical Measures to Counter Data Discrimination 

Countering data discrimination, like detecting it in the first place, may be 

difficult, especially for end users without technical backgrounds. Several technical 

measures to counter data discrimination do exist, however, at least to a limited degree. 

Several potential methods for circumventing applications-based degradation or blocking 

involve the computer port numbers that typically indicate which software application a 

computer should use to open a packet. Computer users and applications developers can 

prevent networks from identifying the application associated with a packet by employing 

port numbers not commonly associated with a particular application or by assigning and 

reassigning port numbers dynamically.136 Alternatively, applications developers can use 

TCP port 80, the number used by most hypertext transfer protocol (“HTTP”) traffic and, 

thus, potentially make an application’s traffic indistinguishable from most other Web 

browser-based traffic.137

To evade differential treatment based on a sender or receiver’s IP address, an end 

user could access information from the Internet through a proxy that reroutes data 

through another server, camouflaging its source and destination.138 Likewise, packets 

might be encrypted so that a network cannot use packet inspection to identify their 

contents or related application.139 Such encrypted packets could also be transmitted 

through a VPN to a gateway computer outside the ISP’s network, where the packets 

could be decrypted and forwarded to their recipient.140 In such a scenario, the last-mile 

ISP would see only streams of encrypted packets traveling from the end user through the 

VPN, thus preventing the ISP from identifying the computers with which the sender is 

communicating.141 Some ISPs have responded to these measures by banning the use of 

VPNs and encryption protocols or charging a fee for their use.142 Alternatively, a 

network might simply relegate or drop altogether encrypted packets when it cannot 

identify their contents. 

An alternate encryption system called “onion routing” conceals packets’ content, 

source, and destination without the use of a VPN. A packet is enveloped in several layers 

of encryption and then sent through a special network of links and unique routers called 

 

136 Lehr et al., supra note 131, at 19-20. See also Lehr, Tr. I at 45-46. 

137 Lehr et al., supra note 131, at 20-21.

138 Id. 

139 For example, some P2P software has been rewritten using the Internet IP Security protocol (“IPSec”) to 

encrypt everything in the packets except the IP header. Id.

140 Felten, supra note 36, at 8-9. 

141 Id. 

142 Lehr et al., supra note 131, at 22. 
36

“routing anonymizers” or “onion routers.”143 A layer of encryption is removed at each 

router until the packet is stripped of encryption and delivered to its destination. Onion 

routing prevents network operators from knowing who is communicating with whom, 

and the content of the communication is encrypted up to the point where the traffic leaves 

the onion-routing network.144 

Even with encryption, however, a network might be able to infer the type of 

packet through flow classification and continue to target certain packets for 

discrimination.145 An end user might try to evade flow classification by altering the size 

and timing of packets, adding blank packets to the flow, or mixing packets from multiple 

flows.146 A network might respond, however, by degrading or blocking all of the user’s 

traffic or by manipulating that traffic in a way that affects one type of application much 

more than it does other types of traffic.147

 Alternatively, end users might be able to offset the effects of certain kinds of 

discrimination to some extent by using buffering techniques to preload data streams into 

a computer’s memory and then accessing them after a period of time, thereby alleviating 

problems with latency or jitter. Such techniques, however, may not be useful for realtime applications like VoIP and streaming video.148 In some circumstances, caching 

content closer to end users might also effectively circumvent discriminatory practices that 

are implemented further into the core of the Internet.149

* * * 

The text above provides historical and technical background regarding the 

Internet to help inform the policy discussion in this Report. In the next Chapter, we 

address the jurisdiction of the relevant federal agencies in the area of broadband Internet 

access, as well as the legal and regulatory developments that have prompted the current 

debate over network neutrality. 

 

143 Id. 

144 Id. See also generally U.S. Navy, Onion Routing: Executive Summary, http://www.onionrouter.net/Summary.html (last visited June 15, 2007). 

145 Felten, supra note 36, at 8-9; Lehr et al., supra note 131, at 23; see Peha, supra note 36, at 4. 

146 Lehr et al., supra note 131, at 23. 

147 Felten, supra note 36, at 9. 

148 Lehr, Tr. I at 48-49. 

149 Id. at 49. 
37

II. LEGAL AND REGULATORY BACKGROUND AND DEVELOPMENTS

 If recent years have seen considerable change in the development and deployment 

of platforms for broadband Internet access, they also have seen considerable flux in the 

field of broadband regulation. A comprehensive review of federal and state law issues 

pertinent to the provision of broadband Internet access would go well beyond the scope 

of this Report.150 This Chapter, however, provides a basic legal and regulatory 

framework for the policy discussion to follow in the remainder of the Report. To that 

end, it sketches the central elements of FTC (in Section A) and FCC (in Section B) 

jurisdiction over broadband services, including the statutory bases of that jurisdiction. 

This Chapter also reviews (in Section C) certain decisions of the courts and the agencies, 

including recent enforcement activity, rulemaking, and policy statements that have served 

to clarify both jurisdictional and substantive questions about broadband Internet access. 

In brief, federal regulatory jurisdiction over broadband services generally is 

subject to the shared jurisdiction of the FCC, the FTC, and the DOJ. FCC jurisdiction 

comes chiefly from the Communications Act,151 which established the FCC and provides 

for the regulation of “interstate and foreign commerce in communication by wire and 

radio.”152 FTC jurisdiction over broadband services comes chiefly from its statutory 

mandate to prevent “unfair methods of competition” and “unfair or deceptive acts or 

practices in or affecting commerce” under the FTC’s enabling legislation, the FTC Act.153 

The FTC’s authority to enforce the federal antitrust laws generally is shared with DOJ’s 

Antitrust Division.154 

 

150 For a more detailed treatment of the pertinent legal background, see, e.g., PETER W. HUBER ET AL.,

FEDERAL TELECOMMUNICATIONS LAW (2d ed. 1999) (especially Chapters 3, 10-12, Supp. (2005), and 

Supp. (2006)). See also NUECHTERLEIN & WEISER, supra note 30 (discussing Internet commerce, policy, 

and law). 

151 47 U.S.C. §§ 151 et seq. Significant amendments to the Communications Act of 1934, 48 Stat. 1064 

(1934), were imposed by the Telecommunications Act of 1996. See Pub. L. No. 104-104, 110 Stat. 56 

(1996). Although broad in scope, the Telecommunications Act of 1996 did not replace the 

Communications Act, but amended it. 

152 47 U.S.C. § 151. 

153 15 U.S.C. §§ 41 et seq. Although the FTC Act is central to the FTC’s jurisdiction over broadband 

Internet access, and competition and consumer protection issues generally, it is not the only statutory basis 

of FTC authority pertinent to the larger Internet debate. With regard to competition concerns, the FTC is 

also charged under, for example, the Clayton Act (15 U.S.C. §§ 12-27); the Hart-Scott-Rodino Antitrust 

Improvements Act of 1976 (15 U.S.C. § 18a) (amending the Clayton Act); and the International Antitrust 

Enforcement Assistance Act of 1994 (15 U.S.C. §§ 46, 57b-1, 1311, 1312, 6201, 6201 note, 6202-6212). 

154 The FTC and DOJ share antitrust authority with regard to most areas of the economy. The two antitrust 

agencies have long-standing arrangements, first established in 1948, that allow them to avoid inconsistent 

or duplicative efforts. See infra notes 218-19 for a discussion of various DOJ merger reviews in the area of 

Internet broadband access. 
38

A. FTC Jurisdiction under the FTC Act 

 The FTC Act gives the FTC broad authority with regard to both competition and 

consumer protection matters in most sectors of the economy.155 Under the FTC Act, 

“[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts 

or practices in or affecting commerce,” are prohibited,156 and the FTC has a general 

statutory mandate “to prevent persons, partnerships, or corporations,” from engaging in 

such prohibited methods, acts, and practices.157

 At the same time, the FTC Act cabins this general grant of statutory authority 

with regard to certain activities. In particular, the FTC’s enforcement authority under the 

FTC Act does not reach “common carriers subject to the Communications Act of 1934,” 

as amended.158 An entity is a common carrier, however, only with respect to services that 

it provides on a common carrier basis.159 As discussed below in Chapter II.C, because 

most broadband Internet access services are not provided on a common carrier basis, they 

are part of the larger economy subject to the FTC’s general competition and consumer 

protection authority with regard to methods, acts, or practices in or affecting commerce. 

Exercising its statutory authority over competition matters, the FTC has, where 

appropriate, investigated and brought enforcement actions in matters involving access to 

content via broadband and other Internet access services. For example, the FTC 

challenged the proposed merger between America Online (“AOL”) and Time Warner, on 

the basis that the merger threatened to harm competition and injure consumers in several 

markets, including those for broadband Internet access and residential Internet transport 

services (i.e., “last mile” access).160 The consent order resolving the agency challenge 

required the merged entity to open its cable system to competitor Internet service 

 

155 The FTC’s authority is defined broadly to deal with “methods . . . acts or practices in or affecting 

commerce.” 15 U.S.C. § 45(a)(2). But for certain limited market sectors that are expressly excluded from 

the FTC’s enforcement authority, and for the areas in which FTC jurisdiction over various market sectors is 

shared, the FTC’s authority ranges broadly over “commerce,” without restriction to particular segments of 

the economy. See id. (FTC authority generally; express exclusion for, e.g., common carriers); supra note 

154 and accompanying text (shared FTC/DOJ antitrust authority). 

156 15 U.S.C. § 45(a)(1). In 1994, Congress defined an “unfair” act or practice over which the FTC has 

authority as one that “causes or is likely to cause substantial injury to consumers which is not reasonably 

avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to 

competition.” Id. § 45(n). 

157 Id. § 45(a)(2). 

158 Id.

159 47 U.S.C. § 153(44) (provider of telecommunications services deemed a common carrier under the 

Communications Act “only to the extent that it is engaged in providing telecommunications services”). 

160 Am. Online, Inc. & Time Warner, Inc., FTC Dkt. No. C-3989 (Dec. 17, 2000) (complaint), available at 

http://www.ftc.gov/os/2000/12/aolcomplaint.pdf. 
39

providers on a non-discriminatory basis, for all content.161 The order also prevented the 

company from interfering with the content of non-affiliated ISPs or with the ability of 

non-affiliated providers of interactive TV services to access the AOL/Time Warner 

system.162 Moreover, the order required the company, in areas where it provided cable 

broadband service, to offer AOL’s DSL service in the same manner and at the same retail 

pricing as in areas where it did not provide cable broadband service.163

 The FTC has addressed Internet access and related issues in a number of other 

merger investigations as well.164 For example, the FTC investigated the acquisition by 

Comcast and Time Warner of the cable assets of Adelphia Communications and, in a 

related matter, the exchange of various cable systems between Comcast and Time 

Warner. In the course of that investigation, the FTC examined, among other things, the 

likely effects of the transactions on access to and pricing of content. The investigation 

eventually was closed because a majority of the Commission concluded that the 

acquisitions were unlikely to foreclose competition or result in increased prices.165

In addition to such competition issues are various consumer protection issues that 

have been raised in the larger Internet access context. Over the past decade, the FTC has 

brought a variety of cases against Internet service providers that have engaged in 

allegedly deceptive marketing and billing practices.166 For example, in 1997, the FTC 

separately sued America Online, CompuServe, and Prodigy, alleging that each company 

had offered “free” trial periods that resulted in unexpected charges to consumers.167 One 

Prodigy advertisement, for example, touted a “Free Trial” and “FREE 1ST MONTH’S 

MEMBERSHIP” conspicuously, while a fine print statement at the bottom of the back 

panel of the advertisement stipulated: “Usage beyond the trial offer will result in extra 

 

161 Id. (Apr. 17, 2001) (consent order), available at http://www.ftc.gov/os/2001/04/aoltwdo.pdf. 

162 Id.

163 Id. 

164 See, e.g., Cablevision Sys. Corp., 125 F.T.C. 813 (1998) (consent order); Summit Commun. Group, 120 

F.T.C. 846 (1995) (consent order). 

165 See Statement of Chairman Majoras, Commissioner Kovacic, and Commissioner Rosch Concerning the 

Closing of the Investigation into Transactions Involving Comcast, Time Warner Cable, and Adelphia 

Communications (Jan. 31, 2006) (FTC File No. 051-0151); see also Statement of Commissioners Jon 

Leibowitz and Pamela Jones Harbour (Concurring in Part, Dissenting in Part), Time 

Warner/Comcast/Adelphia (Jan. 31, 2006) (FTC File No. 051-0151). Both statements are available at 

http://www.ftc.gov/opa/2006/01/fyi0609.htm. 

166 See, e.g., Am. Online, Inc. & CompuServe Interactive Servs., Inc., FTC Dkt. No. C-4105 (Jan. 28, 2004) 

(consent order), available at http://www.ftc.gov/os/caselist/0023000/0023000aol.shtm; Juno Online Servs., 

Inc., FTC Dkt. No. C-4016 (June 25, 2001) (consent order), available at

http://www.ftc.gov/os/caselist/c4016.shtm. 

167 See Am. Online, Inc., FTC Dkt. No. C-3787 (Mar. 16, 1998) (consent order), available at

http://www.ftc.gov/os/1997/05/ameronli.pdf; CompuServe, Inc., 125 F.T.C. 451 (1998) (consent order); 

Prodigy, Inc., 125 F.T.C. 430 (1998) (consent order). 
40

fees, even during the first month.”168 Other alleged misrepresentations included AOL’s 

failure to inform consumers that fifteen seconds of connect time was added to each online 

session (in addition to the practice of rounding chargeable portions of a minute up to the 

next whole minute),169 as well as its misrepresentation that it would not debit customers’ 

bank accounts before receiving authorization.170 The settlement orders in these matters 

prohibited the companies from, among other things, misrepresenting the terms or 

conditions of any trial offer of online service. Although all three matters involved dialup, or narrowband, Internet access, the orders are not limited by their terms to 

narrowband services. 

More recently, in the matter of FTC v. Cyberspace.com,

171 the federal district 

court for the Western District of Washington granted summary judgment in favor of the 

FTC, finding, among other things, that the defendants had violated the FTC Act by 

mailing false or misleading purported rebate or refund checks to millions of consumers 

and businesses without disclosing, clearly and conspicuously, that cashing the checks 

would prompt monthly charges for Internet access services on the consumers’ and 

businesses’ telephone bills. Following a trial on the issue of consumer injury, the court 

ordered the defendants to pay more than $17 million to remedy the injury caused by their 

fraudulent conduct. The Court of Appeals for the Ninth Circuit affirmed the trial court’s 

liability finding last year.172

In addition, the FTC has brought numerous cases involving the hijacking of 

consumers’ modems.173 For example, in FTC v. Verity International Ltd.,

174 the 

Commission alleged that the defendants orchestrated a scheme whereby consumers 

seeking online entertainment were disconnected from their regular ISPs and reconnected 

to a Madagascar phone number. The consumers were then charged between $3.99 and 

 

168 Prodigy, 125 F.T.C. at 430 exhibit A (complaint). Similar complaints were lodged against America 

Online and CompuServe. 

169 For example, “an online session of 2 minutes and 46 seconds, with the 15 second supplement, totals 3 

minutes and 1 second and is billed as 4 minutes.” Am. Online, FTC Dkt. No. C-3787 at 4 exhibit E 

(complaint). 

170 See id. at 5-6 exhibit F. 

171 No. C00-1806L, 2002 U.S. Dist. LEXIS 25565 (W.D. Wash. July 10, 2002), aff’d, 453 F.3d 1196 (9th 

Cir. 2006). 

172 Cyberspace.com, 453 F.3d at 1196. 

173 A list of FTC enforcement actions involving the Internet and online services generally, and modem 

hijacking allegations in particular, can be found at http://www.ftc.gov/bcp/internet/cases-internet.pdf. 

These actions include the following: FTC v. Sheinkin, No. 2-00-3636-18 (D.S.C. 2001); FTC v. RJB 

Telcom, Inc., No. CV 00-2017 PHX SRB (D. Ariz. 2000); FTC v. Ty Anderson, No. C 00-1843P (W.D. 

Wash. 2000); FTC v. Audiotex Connection, Inc., No. CV-97-0726 (DRH) (E.D.N.Y. 1997). 

174 335 F. Supp. 2d 479 (S.D.N.Y. 2004), aff’d in part, rev’d in part, 443 F.3d 48 (2d Cir. 2006), cert. 

denied, 127 S. Ct. 1868 (2007). 
41

$7.78 per minute for the duration of each connection. In that case, AT&T and Sprint – 

which were not parties to the FTC enforcement action – had carried the calls connecting 

the consumers’ computers to the defendants’ servers. Consumers were billed at AT&T’s 

and Sprint’s filed rates for calls to Madagascar. The defendants therefore argued that the 

entertainment service in question was provided on a common carrier basis and thus 

outside the FTC’s jurisdiction. One defendant also claimed to be a common carrier itself 

and hence beyond FTC jurisdiction. Although both the District Court and the Court of 

Appeals rejected those arguments, the FTC had to expend substantial time and resources 

litigating the question of jurisdiction.175

As the Verity case demonstrates, enforcement difficulties posed by the common 

carrier exemption are not merely speculative. The FTC regards the common carrier 

exemption in the FTC Act as outmoded and, as it creates a jurisdictional gap, an obstacle 

to sound competition and consumer protection policy. As the FTC has explained before 

Congress, technological advances have blurred traditional boundaries between 

telecommunications, entertainment, and high technology.176 For example, providers 

routinely include telecommunications services, such as telephone service, and nontelecommunications services, such as Internet access, in bundled offerings. As the 

telecommunications and Internet industries continue to converge, the common carrier 

exemption is likely to frustrate the FTC’s efforts to combat unfair or deceptive acts and 

practices and unfair methods of competition in these interconnected markets. 

 Finally, based on the above discussion of the FTC’s jurisdiction over broadband 

services, three general points may be in order. First, as the investigations and 

enforcement actions described above suggest, the FTC has both authority and experience 

in the enforcement of competition and consumer protection law provisions pertinent to 

broadband Internet access. Second, the FTC Act provisions regarding “[u]nfair methods 

of competition in or affecting commerce, and unfair or deceptive acts or practices in or 

affecting commerce,” are general and flexible in nature, as demonstrated by judicial and 

administrative decisions across diverse markets.177 Third, the FTC’s investigative and 

enforcement actions have been party- and market-specific; that is, neither the general 

body of antitrust and consumer protection law nor the FTC’s enforcement and policy 

record determines any particular broadband connectivity policy or commits the 

Commission to favoring any particular model of broadband deployment. 

 

175 In response to a request from the district court, the FCC filed an amicus brief in support of the FTC’s 

jurisdiction in this matter. See Verity, 443 F.3d at 56, 61. 

176 See FTC Jurisdiction over Broadband Internet Access Services: Hearing Before the S. Comm. on the 

Judiciary, 109th Cong. 9-11 (2006) (statement of William E. Kovacic, Comm’r, FTC), available at

http://www.ftc.gov/opa/2006/06/broadband.shtm. 

177 “Congress has deliberately left these phrases undefined so that the parameters of the FTC’s powers and 

the scope of its administrative and judicial functions could be responsive to a wide variety of business 

practices.” ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 643 & n.4 (6th ed. 2007) 

(citing FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 239-44 (1972); FTC v. R.F. Keppel & Bro., 291 

U.S. 304, 310-12 (1934)). 
42

B. FCC Jurisdiction under the Communications Act

As noted above, FCC jurisdiction over broadband services arises under the 

Communications Act.178 Central to the broadband discussion is a distinction under that 

Act between “telecommunications services” and “information services.”179 The former, 

but not the latter, are subject to substantial mandatory common carrier regulations under 

Title II of the Communications Act.180 While not subject to the Title II common carrier 

regulations, information services are treated by the FCC as subject to its general, 

ancillary jurisdiction under Title I of the Communications Act.181

Under Title II, providers of telecommunications services are bound to, among 

other things, enable functional physical connections with competing carriers,182 at “just 

and reasonable” rates,183 which the FCC may prescribe,184 and are prohibited from 

 

178 47 U.S.C. §§ 151 et seq.

179 Under the Communications Act, an “information service . . . means the offering of a capability for 

generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available 

information via telecommunications . . . .” 47 U.S.C. § 153(20). In contrast, “‘telecommunications 

service’ means the offering of telecommunications for a fee directly to the public . . . regardless of the 

facilities used,” id. § 153(46), and “‘telecommunications’ means the transmission, between or among points 

specified by the user, of information of the user’s choosing, without change in the form or content of the 

information as sent and received.” Id. § 153(43). In brief, to act simply as a transmitter or transducer of 

information is to provide a telecommunications service, whereas to act as a transformer of information is to 

provide an information service. 

180 The Communications Act is divided into seven Titles. See generally 47 U.S.C. §§ 151 et seq. Under 

Title I are “General Provisions,” including, for example, the purposes of the Act, definitions, the 

establishment of the FCC, and the structure and operations of the FCC. Under Title II are the “Common 

Carriers” provisions, including, among others, common carrier regulations and “Universal Service” 

requirements. Under Title III are “Provisions Relating to Radio.” Under Title IV are “Procedural and 

Administrative Provisions.” Under Title V are “Penal Provisions.” Under Title VI are provisions relating 

to “Cable Communications.” Finally, miscellaneous additional provisions are included under Title VII. 

181 See, e.g., In re Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, 

20 FCC Rcd 14853, 14914 (2005) (report and order and notice of proposed rulemaking) (“We recognize 

that . . . the predicates for ancillary jurisdiction are likely satisfied for any consumer protection, network 

reliability, or national security obligation that we may subsequently decide to impose on wireline 

broadband Internet access service providers.”). Although the scope of the FCC’s ancillary jurisdiction over 

broadband services has not been defined by the courts, it should be noted that the Supreme Court, in dicta, 

has recognized the application of the FCC’s ancillary jurisdiction over information service providers. See 

Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 976 (2005). 

182 47 U.S.C. § 201(a). 

183 Id. § 201(b). 

184 Id. § 205. 
43

making “any unjust or unreasonable discrimination in charges, practices, classifications, 

regulations, facilities, or services . . . .”185

 There are, however, several important qualifications on these Title II common 

carrier requirements. First, the Communications Act expressly provides for regulatory 

flexibility to facilitate competition. In particular, with regard to telecommunications 

carriers or services, the FCC 

shall forebear from applying any regulation or any provision of this Act . . 

. if the Commission determines that–(1) enforcement . . . is not necessary 

to ensure that the charges, practices, classifications, or regulations . . . are 

just and reasonable and are not unjustly or unreasonably discriminatory; 

(2) enforcement . . . is not necessary for the protection of consumers; and 

(3) forbearance from applying such provision or regulation is consistent 

with the public interest.186 

In addition, in determining such “public interest,” the FCC must “consider whether 

forbearance from enforcing the provision or regulation promotes competitive market 

conditions.”187 Finally, the Communications Act expressly states that “[i]t shall be the 

policy of the United States to encourage the provision of new technologies and services 

to the public.”188 As a consequence, any person “(other than the Commission) who 

opposes a new technology or service proposed to be permitted under this Act shall have 

the burden to demonstrate that such proposal is inconsistent with the public interest.”189

C. Regulatory and Judicial Clarification 

 As noted above, a series of regulatory and judicial decisions have helped to clarify 

both the distinction between information and telecommunications services and the status 

of broadband services as information services. That clarification is, to an extent, in 

tension with early regulatory and judicial attempts to grapple with the novel technologies 

that enabled the provision of Internet access. For example, in 1980, the FCC 

promulgated rules designed to address, among other things, the growing commerce in 

data-processing services available via telephone wires (the “Computer II Rules”).190 

With reference to those rules, the FCC subsequently applied certain common carrier 

obligations, such as non-discrimination, to local telephone companies providing early 

 

185 Id. § 202. 

186 Id. § 160(a). 

187 Id. § 160(b). 

188 Id. § 157(a). 

189 Id. § 160(b). 

190 See In re Amendment of Section 64.702 of the Comm’n’s Rules & Regulations (Second Computer 

Inquiry), 77 F.C.C.2d 384, 417-23 (1980) [hereinafter Computer II Rules]. 
44

DSL services.191 Further, as recently as 2000, the Court of Appeals for the Ninth Circuit 

held that “the transmission of Internet service to subscribers over cable broadband 

facilities is a telecommunications service under the Communications Act.”192

 Still, the FCC’s current view that broadband services are information services has 

its roots in earlier decisions by the FCC and the courts. The same Computer II Rules that 

grounded the early DSL determination distinguished between “basic” and “enhanced” 

services and did not subject the latter to Title II common carrier regulation.193 In the 

following decade, the FCC recognized that ISPs provide not just “a physical connection 

[to the Internet], but also . . . the ability to translate raw Internet data into information 

[consumers] may both view on their personal computers and transmit to other computers 

connected to the Internet.”194 Moreover, the 1998 Universal Service Report regarded 

“non-facilities-based” ISPs – those that do not own their own transmission facilities – 

solely as information service providers.195 Indeed, even the Ninth Circuit opinion that 

held that ISPs offering cable broadband were offering telecommunications services 

recognized that, under the Communications Act and FCC implementing regulations, a 

significant portion of those services were information services.196

In 2000, the FCC issued a Notice of Inquiry to resolve, among other things, the 

application of the Communications Act’s information/telecommunications distinction to 

cable broadband ISPs.197 In its subsequent declaratory ruling in 2002, the FCC 

concluded that broadband cable Internet access services were information services, not 

 

191 In a 1998 order, the FCC found, among other things, that incumbent local exchange carriers are subject 

to various interconnection obligations under Title II of the Communications Act. See In re Deployment of 

Wireline Servs. Offering Advanced Telecomms. Capability, 13 FCC Rcd 24011 (1998) (memorandum 

opinion and order and notice of proposed rulemaking). The FCC noted that, although DSL and other 

advanced services could “also be deployed using other technologies over satellite, cable, and wireless 

systems, [it would] limit the discussion here to wireline services, because none of the petitioners raise 

issues about these other technologies.” Id. at 24016 n.11. See also GTE Operating Cos. Tariff No. 1, 13 

FCC Rcd 22466 (1998). 

192 AT&T Corp. v. City of Portland, 216 F.3d 871, 880 (9th Cir. 2000). 

193 See Computer II Rules, 77 F.C.C.2d at 428-32. 

194 In re Fed.-State Joint Bd. on Universal Serv., 13 FCC Rcd 11501, 11531 (1998). 

195 See id. at 11530. 

196 See AT&T, 216 F.3d at 877-78. 

197 In re Inquiry Concerning High-Speed Access to the Internet Over Cable & Other Facilities, 15 FCC Rcd 

19287 (2000) (notice of inquiry). As noted above, this notice of inquiry had been expressly limited in its 

application to broadband services provided by local telephone companies over wireline. Prior to 2000, the 

FCC had not ruled on the application of common carrier obligations to broadband services provided via 

cable. It sought, in this notice of inquiry, “to instill a measure of regulatory stability in the market,” and to 

resolve a split in the Circuit courts regarding the regulatory status of “cable modem” broadband services. 

See id. at 19288 & n.3 (comparing AT&T, 216 F.3d 871 with Gulf Power Co. v. FCC, 208 F.3d 1263 (11th 

Cir. 2000)). 
45

telecommunications services, and hence not subject to common carrier regulation under 

Title II.198 In reaching that conclusion, the FCC emphasized the information coding, 

storage, and transformation processes that were central to such services, as it had in 

concluding that non-facilities-based services were information services in its Universal 

Service Report.199 Moreover, the FCC concluded that there was no principled or 

statutory basis for treating facilities-based and non-facilities-based services differently, as 

both offered “a single, integrated service that enables the subscriber to utilize Internet 

access service . . . .”200

In response, several parties sought judicial review of the FCC’s determination in a 

dispute eventually heard by the Supreme Court, in National Cable & 

Telecommunications Association v. Brand X Internet Services (“Brand X”).201 In Brand 

X, the Court upheld the FCC’s determination that cable broadband is an information 

service as a reasonable construction of the Communications Act, reversing a Ninth 

Circuit decision that had relied on City of Portland as precedent.202

In the wake of the Brand X decision, the FCC has continued to expand, platform 

by platform, upon the broadband policy defended in that case. In 2005, the FCC released 

the Appropriate Framework for Broadband Access to the Internet over Wireline 

Facilities (“Wireline Order”), in which it reclassified wireline broadband Internet access 

service by facilities-based carriers as an information service.203 That reclassification 

pertains to both “wireline broadband Internet access service . . . [and] its transmission 

component,”204 and is independent of the underlying technology employed.205 The 

 

198 In re Inquiry Concerning High-Speed Access to the Internet Over Cable & Other Facilities, 17 FCC Rcd 

4798, 4821-22 (2002) (declaratory ruling and notice of proposed rulemaking). 

199 Id. at 4820-23. 

200 Id. at 4823. 

201 545 U.S. 967 (2005). 

202 Id. at 973-74. It should be noted that Brand X is fundamentally a Chevron decision. That is, the Court 

did not examine the question of the status of cable broadband services as an abstract or de novo issue of 

statutory construction. Rather, the Court held that the FCC’s ruling was – because based on reasonable 

policy grounds – a permissible resolution of ambiguous statutory language in the Telecommunications Act 

of 1996, given the FCC’s authority under the Communications Act, the Administrative Procedures Act, and 

standards of agency deference the Court had articulated in Chevron v. NRDC. See id. at 973 (citing 

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) and 5 U.S.C. §§ 551 et seq.). 

203 In re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC 

Rcd 14853 (2005) (report and order and notice of proposed rulemaking). 

204 Id. at 14856. 

205 Id. at 14860 n.15 (“We stress that our actions in this Order are limited to wireline broadband Internet 

access service and its underlying broadband transmission component, whether that component is provided 

over all copper loops, hybrid copper-fiber loops, a fiber-to-the-curb or fiber-to-the-premises (FTTP) 

network, or any other type of wireline facilities, and whether that component is provided using circuitswitched, packet-based, or any other technology.”). 
46

Wireline Order does, however, permit facilities-based wireline carriers to elect to provide 

broadband transmission service on a common carrier basis.206 

In 2006, the FCC released an order in which it classified broadband-overpowerline Internet access services as information services.207 Also in 2006, the FCC 

granted – by operation of law – Verizon’s petition for forbearance from Title II and 

Computer Inquiry Rules208 with respect to its broadband services.209 Verizon had asked 

for forbearance “from traditional common-carriage requirements for all broadband 

services,” seeking relief chiefly with regard to certain commercial broadband services not 

expressly addressed in the Wireline Order or other rulemaking.210 

Most recently, the FCC clarified more generally the status of wireless services as 

information services, issuing in 2007 a declaratory ruling finding: (1) “that wireless 

broadband Internet access service is an information service”; (2) that while the 

underlying transmission component of such service is “telecommunications,” offering 

telecommunications transmission “as a part of a functionally integrated Internet access 

service is not ‘telecommunications service’ under section 3 of the Act”; and (3) “that 

 

206 Id.

207 In re United Power Line Council’s Petition for Declaratory Ruling Regarding the Classification of 

Broadband Over Power Line Internet Access Serv. as an Info. Serv., 21 FCC Rcd 13281 (2006) 

(memorandum opinion and order). 

208 See In re Regulatory & Policy Problems Presented by the Interdependence of Computer & Commun. 

Servs. & Facilities, 28 F.C.C.2d 267 (1971) (final decision and order) (“Computer I”); In re Amendment of 

Section 64.702 of the Comm’n’s Rules & Regulations (Second Computer Inquiry), 77 F.C.C.2d 384 (1980) 

(final decision) (“Computer II”); In re Computer III Further Remand Proceedings: Bell Operating Co. 

Provision of Enhanced Servs., 14 FCC Rcd 4289 (1999) (report and order). Collectively, these matters are 

known as the “Computer Inquiry Rules.” 

209 See Press Release, FCC, Verizon Telephone Companies’ Petition for Forbearance from Title II and 

Computer Inquiry Rules with Respect to Their Broadband Services Is Granted by Operation of Law (Mar. 

20, 2006), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-264436A1.pdf (explaining 

that a forbearance petition will be deemed granted if the FCC does not deny the petition within one year of 

receipt, unless one-year period is extended by the FCC). Although the FCC did not explicitly grant such 

relief, “the effect given to the petition by operation of law grants Verizon’s further broadband relief, 

continuing our policy to encourage new investment.” In re Petition of the Verizon Tel. Cos. for 

Forbearance under 47 U.S.C. § 160(c) from Title II & Computer Inquiry Rules with Respect to Their 

Broadband Servs., WC Docket 04-440 (2006), 2006 FCC LEXIS 1333 (Chairman Martin & Comm’r Tate, 

concurring). 

210 Such services included: (1) packet-switched services capable of 200 Kbps in each direction and (2) 

certain optical networking, hubbing, and transmission services. See In re Petition of the Verizon Tel. Cos. 

for Forbearance under 47 U.S.C. § 160(c) from Title II & Computer Inquiry Rules with Respect to Their 

Broadband Servs., WC Docket 04-440 (Feb. 7, 2006) (ex parte letter from Verizon Tel. Cos.), available at

http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6518324844. 
47

mobile wireless broadband Internet access service is not a ‘commercial mobile service’ 

under section 332 of the Act.”211

Thus, over the past few years, the FCC has essentially unified the regulatory 

status of cable, wireline, powerline, and wireless broadband Internet access services as 

information services that are not subject to Title II common carrier requirements.212 In 

doing so, the FCC has focused on the abstract functional properties of ISPs as they 

ranged across varying implementations or platforms. Underlying this unification has 

been a significant degree of deregulation across broadband technologies, in keeping with 

the statutory interest under the Communications Act in furthering competition and the 

development of new technologies.213 

The FCC has nonetheless continued to demonstrate an interest in, and 

commitment to, broadband Internet access. Certain policy statements have sought to 

guide industry conduct to avoid both FCC enforcement actions and the “potentially 

destructive” impact of overbroad and premature regulation of an “emerging market.”214 

In 2004, then-FCC Chairman Michael Powell challenged the industry to preserve four 

“Internet Freedoms” to that end. They were: 

(1) The “Freedom to Access Content . . . consumers should have access to their 

choice of legal content” (within “reasonable limits” imposed by legitimate 

network management needs); 

 

211 In re Appropriate Regulatory Treatment for Broadband Access to the Internet Over Wireless Networks, 

22 FCC Rcd 5901, 5901-02 (2007) (declaratory ruling).

212 See id. (“This approach is consistent with the framework that the Commission established for cable 

modem Internet access service, wireline broadband Internet access service, and Broadband over Power 

Line (BPL) – enabled Internet access service and it establishes a minimal regulatory environment for 

wireless broadband Internet access service that promotes our goal of ubiquitous availability of broadband to 

all Americans.”) (citations omitted). 

213 See, e.g., Assessing the Communications Marketplace: A View from the FCC: Hearing Before the S. 

Comm. on Commerce, Sci., & Transp., 110th Cong. 2 (2007) (statement of Kevin J. Martin, Chairman, 

FCC), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-270192A1.pdf (“In 2005, the 

Commission created a deregulatory environment that fueled private sector investment. . . . Broadband 

deployment has been our top priority at the Commission, and we have begun to see some success as a result 

of our efforts.”); see also, e.g., Thorne, Tr. II at 34 (“Over the past ten years, the policy of Congress and the 

Federal Communications Commission has been to encourage investment and innovation in broadband 

networks. This policy has been wildly successful.”). In addition, the FCC had undertaken to expand the 

supply of broadband access services by, for example, promoting the use of unlicensed spectrum in rural 

areas. See In re Implementation of the Commercial Spectrum Enhancement Act & Modernization of the 

Comm’n’s Competitive Bidding Rules & Procedures, 20 FCC Rcd 11268 (2005) (declaratory ruling and 

notice of proposed rulemaking) (implementing Enhance 911 Services Act, Pub. L. No. 108-494, 118 Stat. 

3986, Title II (2004)). See infra Chapter VI.D for a more detailed discussion of federal spectrum policies. 

214 Michael K. Powell, Chairman, FCC, Keynote Address at the Silicon Flatirons Symposium: Preserving 

Internet Freedom: Guiding Principles for the Industry (Feb. 8, 2004), available at

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-243556A1.pdf. 
48

(2) The “Freedom to Use Applications . . . consumers should be able to run the 

applications of their choice” (within service plan limits and provided the 

applications do not “harm the provider’s network”); 

(3) The “Freedom to Attach Personal Devices . . . consumers should be permitted 

to attach any devices they choose to the connection in their homes” (within 

service plan limits, provided the devices do not “harm the provider’s network 

or enable theft of service”); and 

(4) The “Freedom to Obtain Service Plan Information . . . consumers should 

receive meaningful information regarding their service plans” (so that 

“broadband consumers can easily obtain the information they need to make 

rational choices.”).215

With some modification, those four Internet Freedoms were incorporated into an 

FCC policy statement (“Broadband Policy Statement”), issued to accompany the 

Wireline Order in 2005.216 Recast as FCC principles, they included: 

(1) The ability of consumers to “access the lawful Internet content of their 

choice”; 

(2) the ability of consumers to “run applications and use services of their choice, 

subject to the needs of law enforcement”; 

(3) the ability of consumers to “connect their choice of legal devices that do not 

harm the network”; and 

(4) the existence of “competition among network providers, application and 

service providers, and content providers.”217

In approving the AT&T/SBC and Verizon/MCI mergers in 2005, the FCC 

required the companies to adhere to connectivity principles set forth in its Broadband 

Policy Statement for a period of two years.218 More recently, in approving the 

 

215 Id. (italics included in published version of address). 

216 See In re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC 

Rcd 14986 (2005) (policy statement). 

217 Id. Also in 2005 – prior to issuance of the Wireline Order – the FCC took enforcement action against 

allegedly discriminatory behavior by an ISP. In re Madison River Communs., LLC, 20 FCC Rcd 4295, 

4297 (2005). The resulting consent decree in that matter required a small North Carolina ISP to “not block 

ports used for VoIP applications or otherwise prevent customers from using VoIP applications.” Id. 

Because the FCC used its Title II authority in this case, under which it can regulate common carrier 

services, this case may not be precedent for future enforcement authority over such services now 

characterized as information services and regulated under the FCC’s Title I ancillary jurisdiction. See also 

infra Chapters VII.B and IX.B for additional discussion of the Madison River matter. 

218 See In re SBC Communs. Inc. & AT&T Corp. Applications for Approval of Transfer of Control, 20 

FCC Rcd 18290 (2005) (memorandum opinion and order) (especially appendix F); In re Verizon 

Communs. Inc. & MCI Inc. Applications for Approval of Transfer of Control, 20 FCC Rcd 18433 (2005) 

(memorandum opinion and order) (especially appendix G). 

The DOJ also examined the proposed mergers and successfully sought, under the Tunney Act, the 

divestiture of certain assets as conditions to such mergers. See United States v. SBC Communs., Inc., Civ. 
49

AT&T/BellSouth merger, the FCC required the combined company to agree not to 

provide or sell (for a period of thirty months following the merger closing date) “any 

service that privileges, degrades, or prioritizes any packet transmitted over 

AT&T/BellSouth’s wireline broadband Internet access services based on its source, 

ownership, or destination.”219

Most recently, the FCC announced an inquiry “to better understand the behavior 

of participants in the market for broadband services.”220 Among other things, the FCC is 

seeking information regarding the following: 

• How broadband providers are managing Internet traffic on their 

networks today; 

• Whether providers charge different prices for different speeds or 

capacities of service; 

• Whether our policies should distinguish between content providers 

that charge end users for access to content and those that do not; 

and 

• How consumers are affected by these practices.221

In addition, the FCC has asked for comments “on whether the [Broadband] Policy 

Statement should incorporate a new principle of nondiscrimination and, if so, how would 

‘nondiscrimination’ be defined, and how would such a principle read.”222

 Action Nos. 05-2102 (EGS) & 05-2103 (EGS), 2007 WL 1020746 (D.D.C. Mar. 29, 2007). In particular, 

the merging parties were required to divest themselves of long-term interests in certain local private line, or 

special access, facilities. Id. at *5 (noting that “[a]part from the difference in geographic scope due to the 

identities of the parties, the proposed final judgments are practically identical and require the same type of 

divestitures.”). See infra Chapter VI.B for a discussion of special access facilities and their relationship 

with broadband Internet services. 

219 In re AT&T Inc. & BellSouth Corp. Application for Transfer of Control, 22 FCC Rcd 5662 (2006) 

(memorandum opinion and order). Two FCC Commissioners issued a concurring statement expressing 

their view that “[t]he conditions regarding net-neutrality have very little to do with the merger at hand and 

very well may cause greater problems than the speculative problems they seek to address.” Id. at 5826 

(Chairman Martin & Comm’r Tate, concurring). 

The DOJ also reviewed the AT&T/BellSouth merger, examining, among other things, the merged 

firm’s ability or incentive to favor its own Internet content over that of its rivals. See Press Release, DOJ, 

Statement by Assistant Attorney General Thomas O. Barnett Regarding the Closing of the Investigation of 

AT&T’s Acquisition of BellSouth 3 (Oct. 11, 2006), available at

http://www.usdoj.gov/atr/public/press_releases/2006/218904.pdf. The DOJ concluded its investigation last 

October, finding that “the merger would neither significantly increase concentration in markets for the 

provision of broadband services to end users nor increase Internet backbone market shares significantly.” 

Id.

220 Press Release, FCC, FCC Launches Inquiry into Broadband Market Practices (Mar. 22, 2007), available 

at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-271687A1.pdf. 

221 Id. 
50

* * * 

 The legal and regulatory developments discussed above have prompted the 

current debate over network neutrality regulation. In the next Chapter, we provide an 

overview of the arguments in favor and against such regulation that have been put forth 

to date. 

 222 Id. 
51

III. OVERVIEW OF ARGUMENTS IN FAVOR OF AND AGAINST 

NETWORK NEUTRALITY REGULATION 

Technology experts have recognized since the Internet’s earliest days that 

network resources are scarce and that traffic congestion may lead to reduced 

performance.223 Although such experts continued to explore different data-transmission 

protocols and the viability of market-based pricing mechanisms through the 1980s and 

1990s, the current debate over broadband connectivity policy did not accelerate until 

more recently.224 At about the same time that the FCC began its cable broadband 

rulemaking proceedings in 2000,225 data routing technologies advanced to the point 

where some network operators began openly to consider using prioritization and other 

active management practices to improve network management and provide certain 

premium services for a fee.226

Various interested parties, including some content and applications providers, 

non-facilities-based providers of Internet services, and third-party commentators, have 

expressed concern about network operators’ use of these routing technologies in an 

environment that is not subject to common carrier regulation. Some of them, therefore, 

have proposed that the transmission of data on the Internet be subject to some type of 

“network neutrality” rules that forbid or place restraints on some types of data or price 

discrimination by network operators.227 This Chapter summarizes the major arguments in 

favor of (in Section A) and against (in Section B) the enactment of some form of network 

neutrality regulation put forth to date.228 Arguments involving data discrimination and 

prioritization, as well as competition and consumer protection issues, are addressed in 

more detail below in Chapters IV through VIII of this Report. 

 

223 See supra Chapter I.A. 

224 See generally Vinton G. Cerf & David Farber, The Great Debate: What is Net Neutrality?, Hosted by 

the Center for American Progress (July 17, 2006), available at

http://www.americanprogress.org/kf/060717%20net%20neutrality.pdf; Tim Wu & Christopher Yoo, 

Keeping the Internet Neutral?: Timothy Wu and Christopher Yoo Debate (Vand. Pub. Law, Research Paper 

No. 0-27, 2006), available at http://ssrn.com/abstract=953989. 

225 See supra Chapter II.C for a discussion of relevant FCC proceedings. 

226 See supra Chapter I.A. 

227 See, e.g., Tim Wu, Network Neutrality, Broadband Discrimination, 2 J. ON TELECOMM. & HIGH TECH.

L. 141, 151 (2005) (“Over the history of communications regulation, the Government has employed both 

common carriage requirements (similar to the neutrality regime discussed here) and limits on vertical 

integration as [a] means of preventing unwanted discrimination.”). See also Cohen, Tr. II at 195 (arguing 

that network neutrality regulation “is really a return to the status quo as where it was [in August 2005 and 

before Brand X] so it’s not . . . a new set of regulations”). 

228 This Chapter is not intended to be a comprehensive treatment of the many arguments put forth in favor 

of and against network neutrality. Instead, this Chapter serves as a general survey of the types of 

arguments raised by both sides of the network neutrality debate. Nor does this Chapter attribute every 

single argument or variation thereon to every individual or entity that has made such arguments. 
52

A. Arguments in Favor of Network Neutrality Regulation 

Proponents of network neutrality regulation argue, among other things, that the 

existing jurisdiction of the FCC, FTC, and DOJ, as well as oversight by Congress, are 

insufficient to deal with what they predict will be inevitable and far-reaching harms from 

so-called non-neutral practices. They suggest that after recent legal and regulatory 

determinations, providers of certain broadband Internet services now have the legal 

authority to act as gatekeepers of content and applications on their networks. 

Principally, these advocates express concern about: (1) blockage, degradation, 

and prioritization of content and applications; (2) vertical integration by network 

operators into content and applications; (3) effects on innovation at the “edges” of the 

network (i.e., by content and applications providers); (4) lack of competition in “lastmile” broadband services; (5) legal and regulatory uncertainty in the area of Internet 

access; and (6) diminution of political and other expression on the Internet. Net 

neutrality proponents argue that various harms are likely to occur in the absence of 

neutrality regulation and that it will be difficult or impossible to return to the status quo if 

non-neutral practices are allowed to become commonplace. Proponents thus see an 

immediate need to enact neutrality regulation.229

1. Concerns about Blockage and Degradation of Non-Favored Content 

and Applications 

 Network neutrality advocates suggest that, without neutrality rules, network 

operators will use packet-inspection technologies to favor the transmission of their own 

content and applications, or those of their affiliates, over those of other providers instead 

of offering the unrestricted access generally available to end users today.230 They 

frequently suggest that end users’ access to the wider Internet will become balkanized 

and restricted to what network operators choose to display in their own proprietary 

“walled gardens.” Proponents believe such walled gardens will look more like the 

original America Online dial-up service or even an Internet version of cable television, 

with access to only a limited number of favored sites. Proponents further point to 

preferential practices in other industries, such as cable television and telephony, as 

indications of the likelihood that network operators will adopt comparable practices in the 

absence of net neutrality regulation.231

 

229 See, e.g., Cohen, Tr. II at 150 (“I can’t take the view that we should start from the premise of wait until 

it’s all destroyed before we do anything about it.”). 

230 See, e.g., Wu, supra note 227. See also EARL W. COMSTOCK, WHAT IS NET NEUTRALITY? (2006), 

available at http://www.comptel.org/content.asp?contentid=658; G. Sohn, Tr. I at 98; Farrell, Tr. I at 220.

231 See, e.g., Lawrence Lessig & Robert W. McChesney, No Tolls on the Internet, WASH. POST, June 8, 

2006, at A23. Lessig and McChesney suggest that “[w]ithout net neutrality, the Internet would start to look 

like cable TV. A handful of massive companies would control access and distribution of content, deciding 

what you get to see and how much it costs.” Id. See also Tulipane, Tr. I at 259-66. In Tulipane’s view, 

“prioritization based on source or content will result in a closed network, just like the cable system today.” 

Id. at 266. Similarly, Sohn suggests: “[s]hort of outright blocking, ISPs could engage in various forms of 
53

 Advocates of net neutrality point to certain statements by ISP executives as 

evidence of their intent to treat some content and applications differently than others.232 

They cite to the Madison River233 matter as evidence that network operators do, in fact, 

have the technological means and incentive to actively degrade or outright block certain 

content and applications.234 They also question whether end users will be able to 

determine readily why certain content and applications might be unavailable or executing 

more slowly or less reliably than others.235 Some also suggest that the introduction of 

specialized, virtual private networks (“VPNs”) that require users to purchase premium 

service packages foreshadows the advent of a balkanized, non-neutral Internet.236

In particular, these proponents warn that network operators might try to disfavor 

some content and applications by inhibiting or forbidding users from attaching related 

devices to their networks, such as the VoIP phone equipment of competing Internet 

telephony providers or VoIP-enabled mobile phones.237 They also state that cable 

companies have, in fact, blocked streaming video applications to protect their own cable 

television businesses and that wireless phone companies have placed limits on the types 

of content and applications that can be accessed using their wireless Internet services.238

Some network neutrality proponents also contend that network operator bans on 

the use of basic residential packages to operate VPNs, open-access Wi-Fi antennas that 

support multiple users, home networks, and computer servers all amount to violations of 

neutrality principles.239 Some, but not all, proponents, however, believe that such 

 discrimination, and the fears [sic] that could have the practical effect of driving innovators to really have 

now a practical need to seek deals with each recipient’s ISP.” D. Sohn, Tr. II at 227-28. 

232 See supra note 64. 

233 In Madison River, an ISP allegedly blocked its customers from accessing a competing VoIP provider. 

The ISP entered into a consent decree with the FCC that prohibited the ISP from blocking ports used for 

VoIP traffic. The ISP also made a voluntary payment of $15,000 to the U.S. Treasury. In re Madison 

River Communs., LLC, 20 F.C.C.R. 4295, 4297 (2005). 

234 See, e.g., Davidson, Tr. I at 227-28. For Davidson, “prioritization in the last mile creates real concerns. 

Particularly, we are concerned that prioritization through router-based discrimination in the last mile 

degrades computing services, and creates incentives to relegate some of those computing services to a slow 

lane.” Id. 

235 See supra Chapter I.C.5. 

236 See, e.g., Yokubaitis, Tr. II at 108. 

237 See, e.g., Libertelli, Tr. I at 73 (“[F]or Skype, network neutrality is about protecting our users’ ability to 

connect to each other, whenever and wherever they want. We support net neutrality[] because it embodies 

a policy of decentralized innovation.”). 

238 See, e.g., John Windhausen, Jr., Good Fences Make Bad Broadband: Preserving an Open Internet 

Through Net Neutrality 16-23 (Public Knowledge White Paper, 2006), available at

http://www.publicknowledge.org/pdf/pk-net-neutrality-whitep-20060206.pdf. 

239 See, e.g., id. 
54

restrictions may be justified because they are meant to solve situations in which a few 

users generate costs that are imposed on other users.240

2. Concerns about Charging Content and Applications Providers for 

Prioritized Data Delivery 

 Net neutrality advocates also express concern that, short of outright blockage or 

active degradation, network operators will present certain content and applications to 

users in a preferential manner in exchange for payment. They express concern that 

network operators may, for example, use packet-inspection technology to provide quicker 

load times for certain providers’ Web pages or faster and more consistent connections for 

favored VoIP or streaming video providers.241 Some network operators have, in fact, 

indicated that they would like to offer certain prioritized services or other kinds of 

quality-of-service guarantees in exchange for a premium fee.242

Some neutrality advocates object to the idea of a network offering prioritized data 

transmission or quality-of-service guarantees in exchange for payment.243 That is, they 

object to a deviation from the long-standing first-in-first-out and best-efforts transmission 

characteristics of the Internet. They are concerned about the potential for prioritization to 

result in blocking or degradation of non-favored content and applications. These 

advocates are concerned that content and applications from providers affiliated with the 

network operator or having a greater ability to pay will be available in a “fast lane,” while 

others will be relegated to a “slow lane,” discriminated against, or excluded altogether.244 

Further, creating priority fast lanes, according to some advocates, necessarily would 

 

240 See, e.g., Wu, supra note 227, at 152. 

241 See, e.g., Editorial, Open Net, THE NEW REPUBLIC, June 26, 2006, available at

http://www.tnr.com/doc.mhtml?pt=oy4NRC5%2Bfnu%2Fm585FtGwlC%3D%3D. 

242 See infra Chapter III.B. 

243 See, e.g., Davidson, Tr. I at 228. In his view: 

[W]hat we’re worried about is in that context, the power to prioritize in the last mile 

effectively becomes the power to control the applications and content that customers can 

effectively use. 

So, imagine, for example, that a last mile provider with market power might be 

able to use prioritization to, for example, relegate a competing Voice over IP provider to 

a lower quality slow lane. It might prevent a competing video provider – prevent a 

competing video service from accessing a higher tier of priority necessary to provide 

good service, and preference its own services instead. 

Id. See also Tulipane, Tr. I at 259-66. 

244 See, e.g., Davidson, Tr. I at 229-30. According to Davidson, “[w]e are concerned about creating a fast 

lane tier of traffic that is susceptible of exclusive dealings.” Id. at 229. In his view, “prioritization that 

provides an incentive to create slow lanes so that you can charge people for the fast lanes is something that 

we think is problematic.” Id. at 230. 
55

result in (intentionally or effectively) degraded service in the remainder of the network.245 

Likewise, some advocates object to the creation of private networks that might provide 

prioritized data transmission or other forms of quality of service to only a limited number 

of customers, arguing that this will represent the “end” of the Internet as we know it.246

Some advocates, therefore, argue that content and applications providers should 

not be allowed to pay a premium fee for prioritized data transmission, even if they want 

to do so. They object, for example, to a possible two-sided market model where content 

and applications providers pay networks for prioritization in the same way that merchants 

subsidize the purchase price of a newspaper by paying for the placement of 

advertisements in return for greater consumer exposure to their advertisements.247 

Instead, in this view, networks should be required to derive revenues principally from 

providing Internet access to residential and business customers.248 Some advocates who 

object to prioritized data transmission would, however, allow network operators to charge 

end users more for the consumption of larger amounts of bandwidth.249 

 Other advocates do not strictly object to prioritization or quality of service for a 

fee.250 They argue, however, that different levels of prioritization should be offered on 

uniform terms to all “similar” content and applications providers and that all end users be 

 

245 See, e.g., id. at 228-30 (“[P]rioritization . . . in the last mile degrades competing services, and creates 

incentives to relegate some of those competing services to a slow lane . . . [given] that the only way that 

you can have a fast lane that you can charge for, that is useful, is if there are also slow lanes that are less 

useful, and less attractive.”). 

246 See, e.g., Lessig & McChesney, supra note 231. Lessig and McChesney predict that, without neutrality 

rules, network operators will use data prioritization “to sell access to the express lane to deep-pocketed 

corporations and relegate everyone else to the digital equivalent of a winding dirt road.” In their view, 

“[n]et neutrality means simply that all like Internet content must be treated alike and moves at the same 

speed over the network.” Id. 

247 See Pepper, Tr. I at 87 (“The last set of questions on net neutrality concern who can be charged for what 

service on broadband connections. Should the Internet access be funded solely by consumers, or can the 

cost be shared with content providers and application providers?”). 

248 See, e.g., Editorial, supra note 241 (“Net neutrality would prohibit all of this. Telecoms could make 

money they way they always have – by charging homes and businesses for an Internet connection – but 

they couldn’t make money from the content providers themselves.”). See also Sidak, Tr. I at 107 (“In other 

words, they don’t have a problem with network operators and end users contracting for prioritized delivery. 

The problem they have is . . . with suppliers of content.”). 

249 See, e.g., Davidson, Tr. I at 228 (“Not all network management is anti-competitive prioritization. And 

there are a lot of things I think many of us agree that are not problematic in this context. So, charging end 

users, whether it’s businesses or consumers, more for more bandwidth, not a problem here.”). See also 

COMSTOCK, supra note 230. 

250 See, e.g., D. Sohn, Tr. II at 230. In Sohn’s view, network neutrality regulation “wouldn’t need to 

involve a complete ban on all prioritization, even on the Internet part. I think in particular, an ISP should 

be free to offer prioritization capability that enables subscribers to choose what services to use it with.” Id. 

See also Cohen, Tr. II at 150 (“There are and should remain many networks on which network providers 

are free to discriminate based on the source, ownership or destination of data . . . .”). 
56

guaranteed a minimum level of access to the entire universe of Internet content.251

Another advocate suggests that network operators should be free to create specialized 

service parameters and to provide prioritized data transmission, but with a requirement 

that networks also maintain a basic level of best-efforts Internet service.252

 Some network neutrality proponents further suggest that, as the speed of the 

Internet continues to increase with the deployment of faster technologies like fiber-optic 

wirelines and improved wireless transmissions, the issue of prioritization may become 

irrelevant.253 They suggest that when Internet speeds of upwards of 100 megabits per 

second (“Mbps”) are widely available, first-in-first-out and best-efforts delivery at these 

rates should be sufficient to transmit all Internet traffic without any problems, even for 

advanced and time-sensitive applications. These proponents suggest that all congestion 

and bandwidth scarcity issues will effectively disappear at these speeds and the issue of 

prioritization will eventually be moot. A neutrality regime, therefore, can be seen as a 

temporary remedy for a problem that ultimately will be outgrown and an important 

measure that will prevent network operators from creating artificial scarcity in their 

networks in the meantime to derive additional revenues by charging content and 

applications providers for new types of data transmission.254 Thus, some of these 

 

251 See, e.g., Wilkie, Tr. I at 170 (“The caveat might be that you might want to add that tiering and offering 

higher levels of prioritization are allowable, but they would have to be offered on a non-discriminatory 

basis, or what economists call ‘second degree price discrimination,’ that is, the prices are functions of the 

level of functionality offered, not the identity of the customer.”). See also G. Sohn, Tr. I at 128 (advocating 

that if one content or applications provider negotiates a particular service arrangement with a network 

operator, a second competing content or applications provider should “absolutely” be provided with an 

identical arrangement by the operator without having to engage in separate negotiations). 

252 See, e.g., Press Release, USC Annenberg Center, Annenberg Center Releases Principles for Network 

Neutrality (2006), available at http://www.annenberg.edu/news/news.php?id=13. See also D. Sohn, Tr. II 

at 226 (suggesting that the optimum outcome is “to keep this neutral open Internet at an acceptable level of 

service, to keep that in existence even as experimentation with other networks . . . proceeds”). 

253 See, e.g., Network Neutrality: Competition, Innovation, and Nondiscriminatory Access: Hearing Before 

the S. Comm. on Commerce, Sci., & Transp., 109th Cong. (2006) (testimony of Gary R. Bachula, Vice 

President, Internet2) [hereinafter Bachula Senate Testimony], available at

http://commerce.senate.gov/pdf/bachula-020706.pdf; Bachula, Tr. II at 164-74. See also Davidson, Tr. I at 

231 (“In most cases, the best way to deal with any concerns about prioritization is to provide better 

broadband, higher bandwidth offerings to consumers.”). 

254 According to Bachula: 

When we first began to deploy our Internet2 network some eight years ago, our 

engineers started with the assumption that we would have to find technical ways of 

prioritizing certain bits, such as streaming video or video conferencing, in order to ensure 

that they arrived without delay. 

For a number of years, we seriously explored various quality of service 

techniques, conducted a number of workshops and even convened an ongoing quality of 

service working group, but as it developed, all of our research and practical experience 

supported the conclusion that it was far more cost effective to simply provide more 

bandwidth. It was cheaper to provide more bandwidth than to install these sophisticated 

quality of service prioritization techniques. 
57

proponents believe that, instead of allowing network operators to engage in prioritization, 

policy makers should focus on creating incentives for the deployment of next-generation, 

high-speed networks.255

 3. Concerns about Vertical Integration 

 Net neutrality proponents also express concern about the prospect of network 

operators integrating vertically into the provision of content and applications. Proponents 

argue that network operators now have the legal and technological ability to control both 

their own physical networks and the ability of content and applications providers to reach 

end users. Proponents further suggest that vertically integrated network operators will 

favor their own content and applications, or those of their affiliates, over others.256 Some 

of these proponents, therefore, argue that network operators’ ability to vertically integrate 

should be legally restricted or forbidden altogether.257

 4. Concerns about Innovation at the “Edges” of the Internet 

 Proponents suggest that if so-called non-neutral practices are allowed to flourish 

in the core of the networks that comprise the Internet, innovation by content and 

applications developers that are connected to the Internet’s “edges” will suffer. Some 

proponents, for example, are concerned about the complexity and cost that content and 

applications providers would experience if they had to negotiate deals with numerous 

network operators worldwide. They suggest that content and applications providers will 

need to expend considerable resources to negotiate and enter into prioritization 

agreements or other preferential arrangements with numerous networks and that many 

(particularly, small) companies will not be able to pay the fees that operators will demand 

to reach end users in a competitive manner.258 Thus, they fear that innovators will be 

 With enough bandwidth in the network, there is no congestion, and video bits do 

not need preferential treatment. All the bits arrive fast enough even if intermingled. 

Bachula, Tr. II at 169. 

255 Robert D. Atkinson & Philip J. Weiser, A “Third Way” on Network Neutrality, 13 THE NEW ATLANTIS

47, 58-59 (2006), available at http://www.thenewatlantis.com/archive/13/TNA13-AtkinsonWeiser.pdf. 

These commentators suggest that Congress should allow companies investing in broadband networks to 

expense new broadband investments in the first year and also extend the moratorium on federal, state, and 

local broadband-specific taxes, but make it contingent upon provision of an open, best-efforts level of 

Internet service. Id. See also generally Lehr, Tr. I at 36 (“[Over time, network] penetration saturates. And 

so, revenues growth slows. And the question is that if we want the industry to continue to meet the growth 

in traffic, we have to figure [out] what the incentives are.”). 

256 See, e.g., Joseph Farrell, Open Access Arguments: Why Confidence is Misplaced, in NET NEUTRALITY 

OR NET NEUTERING: SHOULD BROADBAND SERVICES BE REGULATED?, supra note 42, at 195. 

257 See, e.g., Christian Hogendorn, Regulating Vertical Integration in Broadband: Open Access Versus 

Common Carriage, 4 REV. NETWORK ECON. 19, 30 (2005). 

258 See, e.g., Davidson, Tr. I at 224-33. According to Davidson, “[a]s our founders have said, two graduate 

students in a dorm room with a good idea would not have been able to create this service if the first thing 

that they had to do was to hire an army of lawyers and try to reach carriage agreements with providers all 
58

blocked, actively degraded, or provided with low-priority data transmissions, and the 

development of the next revolutionary Internet site or application may be inhibited. They 

predict that spontaneous innovation will be precluded or forced to proceed through 

established businesses already having significant capital and favored relationships with 

network operators.259 Similarly, net neutrality proponents sometimes argue that nonprofit and educational entities may be at a disadvantage relative to highly capitalized 

businesses.260

 5. Concerns about “Last-Mile” Competition in Broadband Service 

 Net neutrality proponents typically argue that a cable-telephone duopoly exists in 

most markets for last-mile broadband connections and that competition from only two 

broadband providers is not sufficient to check the harms that they envision. Net 

neutrality proponents generally do not believe that one of these competitors will provide 

users with an acceptable, alternative open service if the other decides to pursue exclusive 

deals or data prioritization. Proponents also typically express doubt about the potential of 

newer technologies like wireless Internet and broadband over powerlines to provide in 

the near future a robust, competitive alternative to the access offered by the cable and 

telephone companies.261

 A related concern expressed by some network neutrality proponents is that lastmile ISPs might not disclose to end users the ISPs’ differential treatment of certain data 

and that they will be able to get away with such non-disclosure due to a lack of viable 

competitive alternatives in the marketplace or the difficulty of tracing problems to ISPs’ 

practices. Proponents also suggest that, to the extent that such disclosures are made by 

ISPs, many end users will not be able to readily understand them, making such 

 around the world.” Id. at 226. See also Cohen, Tr. II at 152 (“[Historically, Internet start-ups] did not have 

to negotiate. They did not have to persuade or cajole network providers for special treatment.”); Center for 

Creative Voices in Media, Public Comment 6, at 2 (“Artists must have the freedom to distribute their works 

over the broadband Internet, and the American public must have the freedom to choose from among those 

works, rather than have the cable and telephone broadband providers who overwhelmingly control the 

market for broadband deny those freedoms and make those choices for them.”). 

259 See, e.g., Mark. A. Lemley & Lawrence Lessig, The End of End-to-End: Preserving the Architecture of 

the Internet in the Broadband Era, 48 UCLA L. REV. 925 (2001). Lemley and Lessig suggest that, “[i]f 

that strategic actor owns the transmission lines itself, it has the power to decide what can and cannot be 

done on the Internet. The result is effectively to centralize Internet innovation within that company and its 

licensees.” Id. at 932. See also Farrell, Tr. I at 154 (“[T]here is a concern if you allow last mile providers 

to make charges on content providers, there is a concern about possible expropriation of successful content 

providers.”). 

260 See, e.g., Reconsidering Our Communications Laws: Ensuring Competition and Innovation: Hearing 

Before the S. Comm. on the Judiciary, 109th Cong. (2006) (statement of Jeff C. Kuhns, Senior Director, 

Consulting and Support Services, Information Technology Services, The Pennsylvania State University), 

available at http://judiciary.senate.gov/testimony.cfm?id=1937&wit_id=5418. 

261 See, e.g., Feld, Tr. II at 18-19; Putala, Tr. II at 29 (“The much heralded independent alternatives are still 

tiny.”); Wu, Tr. II at 255 (“I have been hearing that for ten years. I’ve never met anyone who has a 

connection, broadband over power line, and it has been used a million times . . . .”). 
59

disclosures ineffective in checking potential ISP misconduct.262 Some network neutrality 

proponents also argue that the use of data packet inspection and other traffic analysis 

technologies by network operators may give rise to privacy concerns that end users might 

not readily recognize.263

 6. Concerns about Legal and Regulatory Uncertainty 

 Net neutrality advocates suggest that the FCC’s recently issued broadband 

principles, its ancillary jurisdiction over broadband providers under Title I of the 

Communications Act of 1934, and the antitrust laws are insufficient to prevent or police 

potentially harmful conduct by broadband providers.264 In particular, they argue that the 

FCC’s broadband principles are not legally enforceable, that the full scope of its Title I 

authority has yet to be determined, and that any remedial action is likely to result in years 

of litigation and appeals, leaving the status of the Internet in doubt.265 Neutrality 

advocates argue that more concrete examples of alleged harms, beyond Madison River, 

do not exist primarily because network operators have been on their best behavior in the 

short time since recent legal and regulatory determinations were handed down, to avoid 

attracting further scrutiny. Proponents argue that without further regulation, however, 

network operators will likely engage in such practices in the future and that there will be 

no practical way to prevent or remedy the resulting harms without a comprehensive, ex 

ante regulatory regime.266

 7. Concerns about Political and Other Expression on the Internet 

 Advocates suggest that, without a network neutrality rule, operators will likely 

engage in practices that will reduce the variety and quality of content available to users, 

generally. In particular, they suggest network operators may degrade or block content 

that they find to be politically or otherwise objectionable or contrary to their own 

 

262 See, e.g., Kenney, Tr. II at 103 (“I think these disclosure issues are important, but I don’t think that’s the 

issue here today. In fact, the elephant in the room is whether or not disclosure of prioritization practices is 

sufficient to remedy the harm.”). 

263 See, e.g., id. (“I don’t think anyone has a full understanding of what sort of security and vulnerability 

issues are at stake with deep packet inspection technologies.”). 

264 See, e.g., Libertelli, Tr. I at 117 (“[W]e’re talking about a policy statement [(the FCC principles)]; we’re 

not necessarily talking about a binding rule of decision.”); Farrell, Tr. I at 159 (“I am not convinced that 

anti-trust, as currently enforced, is going to do a good job on those potential problems.”). 

265 See, e.g., Network Neutrality: Competition, Innovation, and Nondiscriminatory Access: Hearing Before 

the H. Comm. on the Judiciary, Task Force on Telecom & Antitrust, 109th Cong. 23, 35 (2006) (prepared 

statement of Earl W. Comstock, President and CEO, COMPTEL) [hereinafter Comstock House 

Testimony], available at http://judiciary.house.gov/media/pdfs/printers/109th/27225.pdf. 

266 See, e.g., Misener, Tr. II at 142 (“[W]e really believe that it would be in consumers and industry’s best 

interest for certainty and for a national policy to be set by the Federal Government at the very highest level 

. . . .”). 
60

business interests.267 Neutrality advocates suggest that other types of speech, such as 

individuals’ Web logs, may also be disfavored or blocked as the incidental result of an 

operator’s more general decisions about favoring certain content providers over others.268 

This argument appears to be a variation on the suggestion that, without a neutrality 

regime, innovation (or, in this case, speech) at the edges of the network will be 

inhibited.269

B. Arguments against Network Neutrality Regulation

 Opponents of network neutrality regulation include facilities-based wireline and 

wireless network operators, certain hardware providers, and other commentators. These 

parties maintain that imposing network neutrality regulation will impede investment in 

upgrading Internet access and may actually hamper innovation. They also argue that, 

apart from the Madison River case, the harms projected by net neutrality proponents are 

merely hypothetical and do not merit a new, ex ante regulatory regime. 

Principally, these opponents argue that: (1) the Internet is not neutral and never 

truly has been, and a neutrality rule would effectively set in stone the status quo and 

preclude further technical innovation; (2) effective network management practices 

require some data to be prioritized and may also require certain content, applications, and 

attached devices to be blocked altogether; (3) there are efficiencies and consumer benefits 

from data prioritization; (4) new content and applications also require this kind of 

network intelligence; (5) network operators should be allowed to innovate freely and 

differentiate their networks as a form of competition that will lead to enhanced service 

offerings for content and applications providers and other end users; (6) prohibiting 

network operators from charging different prices for prioritized delivery and other types 

of quality-of-service assurances will reduce incentives for network investment generally 

 

267 See, e.g., Bill D. Herman, Opening Bottlenecks: On Behalf of Mandated Network Neutrality, 59 FED.

COMM. L.J. 107, 118 (2007) (submitted to FTC as Public Comment 26) (“A broadband provider should no 

more be able to stop a customer’s email or blog post due to its political content than a telephone company 

should be permitted to dictate the content of customers’ conversations.”). See also Peha, Tr. I at 26 (“There 

could also be content filtering for other reasons. Perhaps for political reasons I will want to limit access to 

advocacy groups for issues I oppose, or candidates I oppose.”). 

268 See, e.g., Barbara A. Cherry, Misusing Network Neutrality to Eliminate Common Carriage Threatens 

Free Speech and the Postal System, 33 N. KY. L. REV. 483, 507 (2006) (submitted to FTC as Public 

Comment 8) (“If antitrust principles are insufficient to substitute for the functions that common carriage 

and public utility obligations have served in providing access, then free speech rights of individuals will be 

sacrificed to serve economic interests of corporate owners of broadband facilities.”); Feld, Tr. II at 15 

(“Goal number . . . two is the Internet is open and diverse as it exists today or better. . . . The First 

Amendment cares about this stuff. Our democracy depends on this stuff, and Congress has told us to 

protect it as part of the policy. Any policy that doesn’t protect that, even if it is more economically 

efficient, is a failed policy.”). But compare Thomas B. Leary, The Significance of Variety in Antitrust 

Analysis, 68 ANTITRUST L.J. 1007, 1019 (2001) (raising the question of “whether an increase or decrease in 

available variety, by itself, merits independent consideration in antitrust analysis”). 

269 See, e.g., G. Sohn, Tr. I at 134 (“The Internet actually takes away the gate keepers, so people can engage 

in democratic discourse, eCommerce, innovation. It’s been great. And at a certain point, we have to ask 

ourselves, do we want it to remain that way?”). 
61

and prevent networks from recouping their investments from a broader base of 

customers, a practice which might, in turn, reduce prices for some end users; (7) vertical 

integration by network operators into content and applications and certain bundling 

practices may produce efficiencies that ultimately benefit consumers; and (8) there is 

insufficient evidence of potential harm to justify an entirely new regulatory regime, 

especially when competition in broadband services is robust and intensifying and the 

market is generally characterized by rapid, evolutionary technological change. 

 1. Historical and Existing Non-Neutrality of the Internet 

Opponents of network neutrality regulation argue that the Internet is not, and 

never truly has been, “neutral.”270 These opponents generally agree that the first-in-firstout and best-efforts characteristics of the TCP/IP data-transmission protocol have played 

a significant role in the development of the Internet.271 They point out, however, that 

since the earliest days of the Internet, computer scientists have recognized that data 

congestion may lead to reduced network performance and have thus explored different 

ways of dealing with this problem.272

Net neutrality opponents point out that all network routers must make decisions 

about transmitting data and argue that such decisions invariably have implications that 

may not be strictly uniform or neutral. In particular, they note that networks have long 

employed “hot potato” routing policies that hand off to other networks at the earliest 

possible point data that is not destined for termination on their own networks. A 

principal goal of hot potato routing is to reduce the usage of network resources.273 

Opponents note that, during periods of congestion, data packets may be rerouted along 

another path or dropped altogether and that packets may need to be re-sent when 

transmission errors occur. 

Opponents of net neutrality regulation argue that the TCP/IP protocol itself may 

have differential effects for various content and applications.274 For example, static Web 

page content like text and photos and applications like e-mail generally are not sensitive 

to latency. Thus, users typically can access them via the TCP/IP protocol without 

 

270 See, e.g., Ryan, Tr. I at 238 (“IP networks do prioritize. They have from the beginning of time. The 

prioritization that they had in the network at its inception was basically a first in line prioritization, first 

in/first out. So it’s prioritization based on time, and time alone.”). See also McTaggart, supra note 117. 

271 See supra Chapter I.A for a discussion of the TCP/IP protocol. 

272 See generally supra Chapter I. See also Peha, Tr. I at 17 (“Actually, the [TCP/IP] protocol for 35 years 

has allowed priority. But, for the most part, people haven’t used it. Or even implemented it.”). 

273 See, e.g., McTaggart, supra note 117, at 10-12. 

274 See, e.g., Yoo, Tr. II at 219. According to Yoo, “every protocol inherently favors some applications 

over others. TCP/IP, first come, first served, very good at some things, worse at others. In a sense, there is 

no neutral way to go here, by choosing one protocol over the other, you will actually be choosing winners 

and losers.” Id. 
62

noticeable problems, even during periods of congestion. Applications like streaming 

video and videoconferencing, however, may be sensitive to latency and jitter.275 Net 

neutrality opponents argue, therefore, that while first-in-first-out and best-efforts 

principles may sound neutral in the abstract, their practical effect may be to disfavor 

certain latency- and jitter-sensitive content and applications because prioritization cannot 

be used to deliver the continuous, steady stream of data that users expect even during 

periods of congestion.276 

 Network neutrality critics also note that content providers increasingly are using 

local caching techniques to copy their content to multiple computer servers distributed 

around the world, and argue that this practice effectively bypasses the first-in-first-out 

and best-efforts characteristics of the TCP/IP protocol.277 Critics further observe that 

network operators have preferential partnerships with Internet “portal” sites to provide 

users with greeting homepages when they log on, as well as customized and exclusive 

content and applications.278 Similarly, they note that portals, search engines, and other 

content providers often give premium placement to advertisers based on their willingness 

to pay.279 In their view, these practices all constitute additional indicia of existing nonneutrality. 

2. Prioritization, Blockage, and Network Management Requirements 

Network neutrality opponents frequently argue that operators should be allowed 

actively to restrict or block data that they believe may be harmful to the performance of 

 

275 See, e.g., Pepper, Tr. I at 85-86 (“The problem with non-discrimination is that it does not recognize that 

treating different packets differently is necessary for the effective delivery of many services. As more realtime interactive services dominate Internet traffic, it’s going to be more important to differentiate among 

packets.”). See also McTaggart, supra note 117, at 12-14. 

276 Some network neutrality proponents, such as Wu, have concluded that, “[a]s the universe of applications 

has grown, the original conception of [Internet Protocol] neutrality has [become] dated; for IP was only 

neutral among data applications. Internet networks tend to favor, as a class, applications insensitive to 

latency (delay) or jitter (signal distortion).” Wu, supra note 227, at 149. Expanding on this point, some 

network neutrality opponents, such as Yoo, have concluded that, because “TCP/IP routes packets 

anonymously on a ‘first come, first served’ and ‘best efforts’ basis . . . it is poorly suited to applications that 

are less tolerant of variations in throughput rates, such as streaming media and VoIP, and is biased against 

network-based security features that protect e-commerce and ward off viruses and spam.” Christopher S. 

Yoo, Beyond Network Neutrality, 19 HARV. J.L. & TECH. 1, 8 (2005). Therefore, in his view, “[c]ontrary to 

what the nomenclature might suggest, network neutrality is anything but neutral.” Id. 

277 See, e.g., McTaggart, supra note 117, at 6-7 (discussing Google’s distributed computing network). 

278 See, e.g., id. at 4-5 (discussing network partnerships with portals such as Yahoo!, Microsoft MSN, and 

Lycos). See also Waz, Tr. II at 162 (discussing the premium placement of portals on mobile phones). 

279 See, e.g., McCormick, Tr. I at 273 (“[I]f any of us want to kind of envision what prioritization on the 

Internet might look like, I mean, I think the clearest understanding of what we know prioritization would be 

is looking at a Google search page.”). 
63

their networks,280 citing reports that a relatively small number of users can potentially 

overwhelm network resources through the use of bandwidth-intensive applications, such 

as peer-to-peer file-sharing and streaming video.281 They warn that active network 

management, prioritization, and other types of quality-of-service assurances are needed to 

prevent the Internet, or its individual parts, from slowing down or crashing altogether in a 

high-tech “tragedy of the commons.”282 In their view, merely expanding network 

capacity is expensive and may not be the most cost-effective method of network 

management, and future content and applications may be even more resource-intensive 

than applications like BitTorrent are today.283

3. Efficiencies and Consumer Benefits from Prioritization 

Network neutrality opponents argue that market transactions for prioritization and 

other forms of quality of service can, in many cases, allocate scarce network resources in 

 

280 Network neutrality proponents generally allow that some active management is necessary to maintain 

network performance, but typically maintain that it should be limited. See, e.g., PUBLIC KNOWLEDGE,

PRINCIPLES FOR AN OPEN BROADBAND FUTURE: A PUBLIC KNOWLEDGE WHITE PAPER (2005), available at

http://www.publicknowledge.org/pdf/open-broadband-future.pdf. According to this group, “[s]ome have 

maintained that network operators must have the ability to restrict access to the network for legitimate law 

enforcement purposes, or for network management. While these examples may be valid, this authority can 

be easily abused and should not be broadly permitted.” Id. at 10. 

281 See supra Chapter I.C.1. 

282 See, e.g., McCormick, Tr. I at 243. According to McCormick, “[a] better Internet doesn’t simply come 

by adding capacity. Like road networks, rail networks, electrical networks, and traditional telephone 

networks, the advanced networks that comprise the Internet cannot function efficiently and cost-effectively 

without management. No network has ever been built without regard to prioritization of traffic, peak loads, 

and capacity management.” Id. Wireless network operators, in particular, argue that because their 

networks may not have as much bandwidth as other wireline providers, they must be allowed to limit or 

block certain content and applications like BitTorrent and to otherwise actively manage the use of their 

networks’ resources. Network neutrality opponents state that any unintended consequences produced by 

neutrality rules may have particularly acute consequences for such networks. See, e.g., Altschul, Tr. II at 

51 (maintaining that applying network neutrality regulations to wireless broadband networks “would have 

unique effects and they would be negative effects”). 

283 See, e.g., Thorne, Tr. II at 34-39 (discussing the costs of deploying broadband networks). According to 

Thorne: 

When Verizon puts its fiber down a street, it costs us, in round numbers, $800 per home. 

It costs us again, in round numbers, another $840 to connect the home that actually takes 

the service. We spend the money to pass the home, but we don’t know whether the 

customer is going to buy broadband service at all, or buy it from us. 

Id. at 39. See also Schwartz, Tr. I at 255 (“Economically, it doesn’t make sense that the solution is always 

to build more. That’s going to involve carrying a lot of excess capacity, which is going to be expensive.”); 

T. Randolph Beard et al., Why ADCo? Why Now? An Economic Exploration into the Future of Industry 

Structure for the “Last Mile” in Local Telecommunications Markets, 54 FED. COMM. L.J. 421, 430 (2002) 

(estimating the cost of fiber-optic wireline deployment in a metropolitan area at approximately $3 million 

per mile). 
64

a manner more consistent with the actual priorities of end users.284 Opponents further 

suggest that prioritizing streaming telemedicine video, for example, ahead of e-mail or 

network gaming transmissions to reduce latency and jitter would be socially beneficial.285

Net neutrality opponents thus argue that network operators should be allowed to 

prioritize the transmission of certain data or provide quality-of-service assurances for a 

fee in the same way that consumers pay for priority mail service. Some observers note 

that many other types of paid prioritization arrangements such as first-class airline 

seating, congestion pricing for automobile traffic and public transportation, and premium 

advertisement placements are commonplace and generally considered to be socially 

beneficial.286 In addition, they dispute the notion that non-prioritized data will be 

relegated to an unacceptable, antiquated slow lane. Rather, they argue that nonprioritized data traffic will continue to receive an acceptable level of basic service that 

will continue to improve over time along with more general advances in data 

transmission methods.287

4. New Content and Applications and the Need for Network 

“Intelligence” 

Network neutrality opponents argue that new types of specialized services and 

premium content require sophisticated, “intelligent” data-traffic management at both the 

core and edges of the Internet.288 Principal examples include VoIP, streaming video for 

movies and telemedicine, large video download files, interactive network video games, 

and customized business applications. In their view, “dumb” networks based on the 

original TCP/IP protocol’s first-in-first-out and best-efforts standards are becoming 

 

284 See, e.g., Schwartz, Tr. I at 255-56 (“[I]t makes sense to use the price system as a signal of which things 

merit priority.”). 

285 See, e.g., McCormick, Tr. I at 244 (“A communication about your health, for example, is clearly more 

important than how quickly your kid can download a video featuring the antics of someone’s pet 

hamster.”). 

286 See, e.g., Sidak, Tr. I at 112 (“Obviously, we observe price discrimination in competitive markets all the 

time.”). See also Farrell, Tr. I at 157 (“Price discrimination, as you have probably all heard many 

economists say in forums like this, is not necessarily harmful. And that’s correct, given the other 

alternatives available.”). 

287 See, e.g., J. Gregory Sidak, A Consumer-Welfare Approach to Network Neutrality Regulation of the 

Internet, 2 J. COMPETITION L. & ECON. 349, 355 (2006) (“Rather than being forced down Lessig’s ‘digital 

equivalent of a winding dirt road,’ these content providers would be relegated to something more like a 

business-class seat on a flight to Paris.”). 

288 See, e.g., Verizon Communications Inc., Public Comment 60, at 6-8. Verizon, for example, suggests 

that “[n]ew Internet content and applications require innovative new broadband delivery methods” and that 

networks need to be able to prioritize data “to manage bandwidth and control traffic on their network – for 

example, to offer different levels of service for content and applications providers to reach their 

customers.” Id. at 7-8. 
65

increasingly outdated for certain content and applications.289 Opponents argue that many 

of these newer applications are sensitive to different levels of speed, latency, jitter, 

symmetry, bursting, and capacity. For example, virtual teleconferencing generally 

requires high speed, low latency, and symmetry, while some one-time video downloads 

might require only high speed. By contrast, VoIP does not require significant bandwidth, 

but is sensitive to latency and jitter. Neutrality critics argue, therefore, that network 

intelligence will be increasingly necessary to provide the optimal transmission climate for 

each of these new types of content and applications and that both content and applications 

providers and other end users should be allowed to purchase services appropriate to their 

particular needs. 

 5. Network Innovation and Competition 

 Network neutrality opponents contend that network operators should be allowed 

to innovate freely and differentiate their networks as a form of competition that will lead 

to enhanced service offerings for content and applications providers and other end users. 

This perspective has been described as an argument in favor of “network diversity.”290 

Thus, opponents believe that network operators should be able to experiment with new 

data-transmission methods and a variety of business plans to better serve the evolving 

demands of end users. If such experiments turn out to be failures, network operators will 

learn from their mistakes and improve their offerings or simply return to the status quo, 

consistent with the normal dynamics of the market process.291 In their view, a ban on 

prioritization would effectively restrict new types of competition, hinder innovation, 

potentially preclude price reductions for consumers, hamper efficiencies, and lock in one 

kind of business model.292 They warn that in the nascent and evolving market for 

broadband services, mandating a single business plan is likely to lead to inefficient and 

unintended outcomes.293 They also assert that allowing content and applications 

 

289 See, e.g., Adam Thierer, Are “Dumb Pipe” Mandates Smart Public Policy? Vertical Integration, Net 

Neutrality, and the Network Layers Model, in NET NEUTRALITY OR NET NEUTERING: SHOULD BROADBAND 

INTERNET SERVICES BE REGULATED?, supra note 42, at 73. See also Pepper, Tr. I at 81-83. 

290 See, e.g., Yoo, supra note 276, at 9 (“In other words, standardization of TCP/IP would have the effect of 

narrowing the dimensions of competition, forcing networks to compete solely on the basis of price and 

network size.”). 

291 See, e.g., Yoo, Tr. II at 220 (“If we have four players and one wants to experiment with a different 

architecture, if they are wrong, they will get hammered and they will come back to the fold. If they are 

right, it’s precisely the kind of innovation we should tolerate and encourage.”). 

292 See, e.g., American Bar Association Section of Antitrust Law, Public Comment 2, at 8 (“Ultimately, we 

believe that the competitive process will drive investment and innovation in the Internet. That investment 

and innovation will inure to the benefit of all consumers. We do not think that imposing nondiscrimination statutes, regulations or policies will offer any offsetting benefits economically.”). 

293 See, e.g., Pepper, Tr. I at 88 (“[One] concern is really whether net neutrality regulation designed to 

prevent anti-competitive conduct could limit, or prohibit consumer welfare-enhancing network 

functionality and management, as well as discourage innovation. In other words, regulation is not 

costless.”). 
66

providers to purchase quality-of-service assurances and prioritization may allow new 

content and applications providers to counteract the competitive advantages typically 

enjoyed by incumbent providers, such as the ability to pay for large server farms or thirdparty data caching services.294

6. Network Investment and Potential Consumer Benefits 

Opponents argue that prohibiting network operators from charging different 

prices for prioritized delivery and other types of specialized services and premium 

content will make it more difficult to recoup the costs of infrastructure investments and, 

thereby, reduce incentives for network investment generally.295 They argue that both end 

users and content and applications providers should be free to select any level of service 

provided by network operators under market-negotiated terms.296

 Network neutrality opponents also stress that, although the Internet began as a 

research and government communications network, its explosive growth since the mid1990s has been fueled mainly by private, risk-bearing investment.297 They emphasize 

that the individual, decentralized networks that make up the Internet mostly are owned 

and operated by private companies and, generally speaking, are private property, even 

though they may be subject to certain legal requirements like rights of way 

permissions.298 They point out that deploying and upgrading broadband networks can 

entail billions of dollars in up-front, sunk costs.299 Thus, they argue, any regulation that 

reduces network operators’ ability to recoup their investments also effectively increases 

 

294 Similarly, some network neutrality opponents argue that efforts by current leading content providers to 

codify the status quo under the guise of neutrality rules are really nothing more than a veiled strategy to 

commoditize data transmission and, thereby, preserve their own existing competitive advantages against 

possible competitive threats based on new data-transmission techniques. See, e.g., Yoo, supra note 276, at 

9 (“[T]he commodification of bandwidth would foreclose one avenue for mitigating the advantages enjoyed 

by the largest players.”). See also George S. Ford et al., Network Neutrality and Industry Structure 1 

(Phoenix Center Policy Paper No. 24, 2006) (“[P]olicymakers should avoid Network Neutrality mandates 

that have the intent or effect of ‘commoditizing’ broadband access services since such a policy approach is 

likely to deter facilities-based competition, reduce the expansion and deployment of advanced networks, 

and increase prices.”). 

295 See, e.g., Lenard, Tr. I at 181 (arguing there is a “striking lack of concern about the effect on incentives 

to invest and innovate”). 

296 See, e.g., Sidak, Tr. I at 107 (“Well, why do you need to have a federal law prohibiting one kind of 

transaction, when you’re perfectly happy with the other?”). 

297 See, e.g., Waz, Tr. II at 155-61. Waz states that “[a]ll that competitive investment is what makes it 

possible for a Google and Yahoo! and eBay and Amazon and others to be here today . . . .” Id. at 158. 

298 See, e.g., Bruce Owen & Gregory L. Rosston, Local Broadband Access: Primum Non Nocere or 

Primum Processi? A Property Rights Approach, in NET NEUTRALITY OR NET NEUTERING: SHOULD 

BROADBAND INTERNET SERVICES BE REGULATED?, supra note 42, at 163. 

299 See, e.g., Thorne, Participant Presentation, at 1 (identifying Verizon Communications capital 

expenditures of approximately $45 billion during 2004-06). 
67

their risk profile to investors and, accordingly, would prompt capital markets to demand 

an adjusted, higher rate of return. They suggest such an increase in the cost of capital, in 

turn, would decrease the likelihood that projects underway could be completed on their 

planned scale.300 

In addition to reducing incentives for network investment generally, opponents 

argue that banning network operators from selling prioritized data delivery services to 

content and applications providers will prevent networks from recouping their 

investments from a broader base of customers.301 In particular, they suggest that 

networks should be allowed to experiment with a model in which content and 

applications providers pay networks for prioritization and other premium services in the 

same way that merchants pay for the placement of advertisements in newspapers and 

other publications.302 They suggest that such a business model might reduce prices for 

some end users, much as advertising subsidizes the subscription prices of ad-supported 

publications, thereby allowing marginal customers to afford broadband service.303 They 

further suggest that such increased end-user penetration would also increase the effective 

demand for content and applications, generally, and thereby benefit their providers.304

7. Economies of Scope from Vertical Integration and Bundling 

Net neutrality opponents argue that vertical integration by network operators into 

content and applications, along with related bundling practices, may produce economies 

 

300 Sidak, supra note 287, at 357. In addition, some commentators characterize neutrality rules as being a 

kind of regulatory taking of private property that can no longer be justified under a theory of natural 

monopoly or other similar grounds. See, e.g., Thomas W. Hazlett, Neutering the Net, FIN. TIMES, Mar. 20, 

2006; Richard A. Epstein, What We Need is Regulatory Bed Rest, FIN. TIMES, Mar. 20, 2006. Both articles 

are available at http://www.ft.com/cms/s/392ad708-b837-11da-bfc5-0000779e2340.html. 

301 See, e.g., Yoo, Tr. II at 217 (“[W]e need to allow more flexibility on the server side. . . . Part of those 

costs should also vary based on who, which servers, which content and applications providers need those 

services.”). See also Sidak, supra note 287, at 367-68. 

302 See, e.g., Yoo, Tr. II at 217 (“[W]e have learned in fact, these are two-sided markets. Basically, 

upgrades to the network have to be paid for either by consumers or by the server content application 

side.”). See also Schwartz, Tr. I at 258-59 (“[N]obody knows what the right pricing structure is. I don’t 

claim to know it; nobody does. There is no presumption that the right structure is to recover all of the cost 

of consumer broadband networks from consumers alone.”). Other examples of two-sided or, more 

generally, multi-sided markets include credit cards (involving merchants and cardholders); dating services 

(men and women); video game platforms (developers and players); and telephone networks (callers and 

receivers). See generally Jean-Charles Rochet & Jean Tirole, Two-Sided Markets: A Progress Report

(Institut d’Économie Industrielle (IDEI), Toulouse, Working Paper No. 275, 2005), available at

http://idei.fr/doc/wp/2005/2sided_markets.pdf. 

303 See, e.g., Schwartz, Tr. I at 259 (“What economics predicts–and it’s independent of a monopoly or–it’s 

independent of the degree of competition in broadband access–the prediction is if you allow them to charge 

content providers, in their own interest they will now reduce prices to consumers, and therefore, encourage 

penetration.”). 

304 See, e.g., id.; Sidak, supra note 287, at 367-68; Sidak, Tr. I at 114-15. 
68

of scope and price reductions. They point out that many areas of telecommunications are 

increasingly converging. For example, both cable and traditional telecommunications 

companies increasingly are offering “triple-” and “quadruple-play” bundles of high-speed 

data, telephony, television, and wireless services.305 In addition, they state that the 

vertical integration of distribution with other types of media content is already 

commonplace because consumers typically do not want distribution alone, but, instead, 

want the particular content enabled by that distribution.306 Some opponents also suggest 

that the prospect of additional revenue streams derived from vertical integration and 

bundling could promote additional competition in last-mile broadband services and 

provide other benefits to end users.307

8. Insufficient Evidence of Harm to Justify New Regulation 

 Network neutrality opponents argue that there is insufficient evidence of harm to 

justify an entirely new ex ante regime, particularly when, in their view, competition in 

broadband services is robust and intensifying due, in large part, to de-regulation. They 

state that, apart from the Madison River case, which was quickly resolved by the FCC, 

the harms projected by network neutrality proponents are merely hypothetical and, 

therefore, do not merit new rules.308 Also, they note that a number of network operators 

have publicly pledged not to block or degrade end users’ use of their services.309 They 

 

305 See generally Marguerite Reardon, Cable Goes for the Quadruple Play, CNET NEWS.COM, Nov. 7, 2005, 

http://news.com.com/2100-1034_3-5933340.html. See also generally Your Television is Ringing, 

ECONOMIST, Oct. 14, 2006, at 3 (special survey of telecommunications convergence). 

306 See, e.g., Lenard, Tr. I at 177 (“So what may be needed for a successful business model may be a 

bundled product offering that is sufficiently attractive to attract enough consumers to become subscribers at 

prices that are going to pay off the costs of these very large investments.”). See also Thomas L. Lenard & 

David T. Scheffman, Distribution, Vertical Integration and the Net Neutrality Debate, in NET NEUTRALITY 

OR NET NEUTERING: SHOULD BROADBAND INTERNET SERVICES BE REGULATED?, supra note 42, at 1, 13. 

307 See, e.g., Rosston, Tr. I at 164-65. According to Rosston, “some of these vertical relationships that 

people are concerned about that may increase the profits of a new entrant may be the thing that is 

necessary, in order to get a new entrant, in order to compete.” Id. See also Thorne, Tr. II at 57-58. 

Verizon, for example, suggests that it would be interested in partnering with hospitals to develop 

specialized medical applications that could be delivered over its fiber-optic wireline networks to allow the 

remote treatment of patients. Id. Likewise, some observers have pointed to Google’s involvement in 

advertisement-supported municipal wireless Internet systems as an example of how vertical integration 

may enhance last-mile competition and benefit consumers. See, e.g., Sidak, Tr. I at 108-09; Thorne, Tr. II 

at 37; Wallsten, Tr. II at 59. 

308 See, e.g., Wolf, Tr. II at 143-44 (“[J]ust as a doctor would not prescribe needless medication for a 

growing adolescent on the possibility that some day that adolescent might develop a condition, so, too, we 

think Federal regulators are prudent to refrain from prescribing conditions that may in fact stifle or injure 

needed growth.”). See also Kahn, Tr. I at 185 (“I think the lesson of history is be very, very careful that 

you don’t meddle with a process that is clearly characterized by Schumpeterian [dynamic] competition.”). 

309 See, e.g., Thorne, Tr. II at 40 (“[Verizon has] made clear [that] when consumers buy Internet access 

capacity from us, they should be able to reach any lawful website they want to get to with that capacity, and 

we do not and will not block, degrade, or interfere with consumers’ access to any website.”); Net 

Neutrality: Hearing Before the S. Comm. on Commerce, Sci., & Transp., 109th Cong. 21 (2006) (statement 

of Kyle McSlarrow, President & CEO, National Cable & Telecommunications Association), available at
69

argue that operators do not have sufficient power over the distribution of content and 

applications310 and, in fact, would alienate their end-user customers if they tried to 

engage in such practices.311 Furthermore, they question whether it would even be costeffective for network operators to search for and block specific kinds of content and 

applications in an ever-expanding Internet universe, given that an increasing number of 

proxy servers and encryption techniques are available to end users to counter any such 

blocking.312 Similarly, some observers suggest that if such practices are detected, end 

users can quickly publicize them and thereby “embarrass” the relevant network operator 

engaging in such conduct.313

Finally, network neutrality opponents suggest that the existing jurisdiction of the 

antitrust agencies and the FCC is sufficient to deal with any prospective problems 

resulting from the use of new data-transmission methods.314 Generally, network 

neutrality opponents suggest that any such problems should be handled on a case-by-case 

basis – not through ex ante legislation or regulation.315 They express concern that any 

such regime might be manipulated in order to achieve strategic, anticompetitive outcomes 

or be subject to other forms of rent-seeking behavior and unintended consequences. 

 http://commerce.senate.gov/public/_files/30115.pdf (“NCTA’s members have not, and will not, block the 

ability of their high speed Internet service customers to access any lawful content, application, or services 

available over the public Internet.”). 

310 See, e.g., Thorne, Tr. II at 42 (“Does Verizon have the ability to prevent Google or eBay or these others 

from reaching end users, when the most we could do is temporarily shut off a couple percent of the end 

users they can see? . . . There is no single broadband provider that has that kind of power.”). 

311 Opponents argue that a shift away from the America Online-type walled-garden model has taken place 

and predict, therefore, that customers would vigorously protest any attempt to return to it after becoming 

accustomed to generally unrestricted Internet access. See, e.g., Pepper, Tr. I at 136-37. 

312 See, e.g., Thorne, Tr. II at 43 (“What we are selling is precisely the capacity to reach all lawful content 

and applications. Broadband providers are motivated to maximize the content and applications available to 

our customers because doing that maximizes the value of our network and the sales we can make.”). See 

also generally Cat and Mouse, On the Web, ECONOMIST, Dec. 2, 2006, at 3 (The Economist Technology 

Quarterly survey) (discussing the ability of networks to block end users’ access to desired content and 

applications and methods that end users may employ to circumvent such practices). 

313 See, e.g., Lehr, Tr. I at 44 (“So, if there is a particular behavior that a carrier is doing, some sort of 

quality of service differentiation that really has no justification in cost, and looks really high-handed, it’s 

very common for this to get, you know, blogged in real time, and for this to embarrass the carrier so that – I 

mean, the carriers and the operators – and force them to change their behavior.”). See also Weiser, Tr. II at 

92 (making the same point). 

314 See, e.g., Muris, Tr. II at 122 (“If problems of the sort imagined by the advocates of regulation emerge, 

the appropriate law enforcement authorities have the jurisdiction and expertise necessary to address 

them.”). 

315 See, e.g., Schwartz, Tr. I at 254 (“[I]f foreclosure does rise to the level of a serious competitive problem, 

the right response is to address it at the time, on a case-by-case basis–at least that’s my view.”). 
70

IV. DISCRIMINATION, BLOCKAGE, AND VERTICAL INTEGRATION 

As discussed in the preceding Chapter, proponents of network neutrality 

regulation have raised a variety of concerns about the effects of vertical integration in 

broadband markets, as broadband Internet access providers have begun to offer online 

content and applications in addition to their primary access services. In particular, 

proponents are concerned that providers may block or discriminate against unaffiliated 

content and applications, to the benefit of affiliated offerings. Because such concerns 

may stem from diverse vertical arrangements, this Chapter will construe vertical 

“integration” broadly to include any arrangement under which a broadband Internet 

access provider may claim income generated by content or applications, such as joint 

ventures and exclusive dealing arrangements, as well as outright ownership of content or 

applications. 

This is a particularly complicated issue because vertical integration into content 

and applications provision can create both incentives to engage in procompetitive, 

socially beneficial behavior and incentives to engage in anticompetitive, socially harmful 

behavior. Vertical integration generally need not be anticompetitive or otherwise 

pernicious316 and is often driven by efficiency considerations.317 For example, such 

integration may facilitate further network or content and applications development, and it 

may spur development of network, content, and applications more optimally suited to 

each other. Both price and non-price dimensions of broadband Internet service may thus 

improve. As a result, the notion that vertical integration tends generally to be 

anticompetitive has been widely rejected in antitrust law and economics for several 

decades.318 

Many net neutrality proponents argue that their concerns about vertical integration 

arise only when there is insufficient competition in the underlying Internet access market. 

In that case, a vertically integrated last-mile access provider might exercise its market 

power to block access to competing content or applications, degrade the transmission of 

competing content or applications, or reduce investment in best-efforts Internet access 

services in favor of priority services that carry the access provider’s own or affiliated 

content or applications. Other proponents, however, have concerns that are independent 

of the degree of market power the access provider enjoys in the access market itself. 

These include concerns about the so-called terminating access monopoly problem and the 

potential “balkanization” of the Internet. 

 

316 See, e.g., Farrell, Tr. I at 154 (concerns about vertical integration in broadband markets are substantial 

but contingent, sometimes highly uncertain, and “very hard to observe, and pin down”). 

317 See, e.g., Yoo, Tr. II at 213-14 (citing research by FTC Bureau of Economics Director Michael Salinger 

regarding efficiencies in vertical integration in the telecommunications industry). 

318 See, e.g., Joseph Farrell & Philip Weiser, Modularity, Vertical Integration, and Open Access Policies: 

Towards a Convergence of Antitrust and Regulation in the Internet Age, 17 HARV. J.L. & TECH. 85, 87 

(2003).
71

 This Chapter of the Report discusses concerns that net neutrality proponents have 

raised about vertical integration in broadband Internet services. Section A discusses 

problems that are most likely to arise when a provider enjoys substantial market power in 

the provision of last-mile Internet access; Section B discusses certain problems that may 

arise independent of the degree of market power attributed to an access provider; Section 

C discusses various benefits that may be derived from increased vertical integration in 

these markets; and Section D provides a brief summary of the competing arguments and 

remaining uncertainties. 

 Because several types of alleged problems with vertical integration are tied in 

some way to price or data discrimination, and because both definitions and applications 

of “discrimination” have been contentious in the broadband Internet access discussion,319

this Chapter first briefly clarifies that the economic meaning of discrimination is that of 

differentiation and is not intended to have any negative connotation.320 Thus, this Report 

– in particular, this Chapter and Chapter V – does not assume that price discrimination or 

any form of product or service differentiation is necessarily anticompetitive or anticonsumer.321 Even where demand conditions allow a seller to price above marginal cost, 

price discrimination can provide a means of increasing overall consumer welfare by, for 

example, providing access to goods or services for some consumers who otherwise would 

be priced out of the market.322

 

319 See, e.g., Ford, Tr. II at 239 (criticizing imprecise usage of terms like “discrimination” in the broadband 

policy discussion). Cf. Farrell, Tr. I at 204-05 (noting disagreement in price discrimination terminology 

within Workshop, but suggesting semantic dispute is unproductive); Lehr, Tr. I at 37-38 (trying to “move 

away from the loaded term” of “discrimination”); William H. Page & John R. Woodbury, Paper Trail: 

Working Papers and Recent Scholarship, THE ANTITRUST SOURCE, Apr. 2007, at 6, available at

http://www.abanet.org/antitrust/at-source/07/04/Apr07-PTrail4=27f.pdf (criticizing Workshop participant 

Sidak’s discussion of price discrimination and Ramsey pricing). 

320 That is, we generally attach no negative connotation to “discrimination.” Plainly, however, as 

mentioned above and discussed throughout this Chapter and Chapter V of this Report, concerns have been 

raised about particular potential forms of discrimination, such as blocking or degradation of competing 

content and applications. 

321 Classical price discrimination can, depending on its form, involve a combination of differential pricing 

and product differentiation. See generally ARTHUR C. PIGOU, THE ECONOMICS OF WELFARE (Transaction 

Publishers 2002) (1920) (articulating, among other things, a general theory of price discrimination). The 

idealized model discussed by Pigou involves monopoly pricing; there is no suggestion here that any 

particular entities in the broadband Internet access market enjoy monopoly power or its approximation. Cf.

William J. Baumol & Daniel G. Swanson, The New Economy and Ubiquitous Competitive Price 

Discrimination: Identifying Defensible Criteria of Market Power, 70 ANTITRUST L.J. 661, 662 (2003) (“[I]t 

is competition, rather than its absence, that in many cases serves to impose discriminatory pricing.”); 

Alfred E. Kahn, Telecommunications, the Transition from Regulation to Antitrust, 5 J. ON TELECOMM. &

HIGH TECH. L. 159, 177 (2006) (emphasizing “the difference between price discriminations, such as might

be taken to reflect inadequacies of competition, and differentiations on the basis of differences in costs, 

such as would unequivocally be reflective of effective competition”).

322 That is, by producing and selling additional units priced between the highest-priced good or service and 

the marginal-cost good or service. Hal Varian demonstrated generally that an increase in output is 

necessary for profit-maximizing price discrimination to increase welfare. See Hal R. Varian, Price 

Discrimination and Social Welfare, 75 AM. ECON. REV. 870, 875 (1985); see also generally JEAN TIROLE, 
72

 Product differentiation in its simplest form can be a means of offering different 

versions of a good to different consumers, according to their demands. A common 

example is airline travel. Although all passengers receive the same basic product 

(transport from one airport to another), airlines offer different fares based on different 

levels of service during the flight (first class or coach) and flexibility in making 

arrangements (leisure travel advance fares or last-minute business fares). By linking 

price and product differentiation, a seller may be able to capture profits that would have 

been available under unitary pricing and yet serve segments of the market that otherwise 

would be excluded.323

A. Last-mile Access Concerns Contingent on Market Power 

Some net neutrality proponents have argued that vertically integrated broadband 

providers possessing market power in the provision of last-mile access could leverage 

that power in ways ultimately harmful to consumers. There are two major related 

concerns. First, such providers could have incentives to discriminate against competing 

content or applications providers.324 Second, such providers could have incentives to 

underinvest in the facilities used to provide common, best-efforts Internet access services. 

 Because techniques such as deep packet inspection can reveal source or content 

information, there is some concern that vertically integrated providers with sufficient 

incentives to discriminate against competing content could do so.325 Such blocking could 

take several forms. A broadband provider with an interest in content or applications 

could block competing content or applications outright. Less extreme forms of 

discrimination could impose degraded or otherwise inferior transmission on competing 

 THE THEORY OF INDUSTRIAL ORGANIZATION 137-39 (1988). Several Workshop participants applied this 

general point to the broadband competition discussion. See, e.g., Sidak, Tr. I at 114-15. Several others 

focused on the particular variant of so-called Ramsey price discrimination, observing, for example, that 

Ramsey pricing is “the most efficient way to recover fixed costs.” See Yoo, Tr. II at 217; Lehr, Tr. I at 38. 

In a seminal paper based on then-current models of monopolist price discrimination, Frank Ramsey 

considered how a proportionate tax system might be structured to raise a given amount of revenue while 

imposing a minimum decrease in utility. See F.P. Ramsey, A Contribution to the Theory of Taxation, 37 

ECON. J. 47, 47 (1927). The most general answer – that, “the taxes should be such as to diminish in the 

same proportion the production of each commodity taxed” – provided a foundation not just for models of 

taxation, but for, among others, utility rate structures and constrained price discrimination. See id. 

Ramsey’s model mirrors monopolist price discrimination, but does so subject to a profit constraint. 

323 See PIGOU, supra note 321, at 279-80. 

324 See, e.g., Farrell, Tr. I at 156. 

325 See Michael Geist, ISP Must Come Clean on Traffic Shaping, TORONTO STAR, Apr. 16, 2007, at D5, 

available at http://www.thestar.com/sciencetech/article/203408. See also supra Chapter I for a discussion 

of deep packet inspection and other traffic-shaping technologies. 
73

content. For example, such content might be denied access to prioritized routing,326

relegated instead to best-efforts or otherwise inferior routing.327

 1. Discrimination against Competing Content and Applications 

 Some net neutrality proponents have argued that, if a broadband provider had a 

financial stake in particular content or applications, it could have an incentive to block its 

competitors’ content or applications.328 In broad economic terms, one Workshop 

participant identified the potential incentives to block competing content or applications 

as the incentives to “resist substitutes”329 for complementary goods in which the 

integrated entity has a stake.330 

The incentive to block competitors could, for example, be to protect the primary 

(broadband Internet access) market from future competition, especially from content or 

applications providers that might themselves seek a presence in the access market;331 or 

the access provider could seek to facilitate price discrimination in the primary market.332

 

326 In the alternative, the broadband provider could charge a very high price to competing content providers 

to access priority routing. 

327 See, e.g., CENTER FOR DIGITAL DEMOCRACY, LIFE IN THE SLOW LANE: A GUIDE TO THE UN-NEUTRAL 

NET (2006), available at http://www.democraticmedia.org/issues/UNN.html.

328 See, e.g., G. Sohn, Tr. I at 116 (regarding “the possibility” that a provider would “favor certain 

applications, content, and services”); cf. Libertelli, Tr. I at 76 (alleging actual applications discrimination or 

blocking in wireless broadband 3G markets). 

329 Farrell, Tr. I at 156. Farrell points out that if the broadband provider were allowed to charge competing 

content providers a price for access equal to profits the broadband provider would lose by customers 

buying the competing content instead of his own content, then there would be no incentive to block access. 

However, this would lead to a very high price for the content – even monopoly levels. See also Rosston, 

Tr. I at 163. 

330 Some cable companies providing broadband service are currently integrated into IP telephony (in 

addition to cable services, including video on demand). Conversely, some telephone companies providing 

broadband service are currently integrated into cable-type video services (in addition to telephone services). 

For example, AT&T through its affiliation with Akimbo Systems will branch out into other Internet content 

as well. See Laurie Sullivan, AT&T Aims for Internet Television, TECHWEB TECH. NEWS, Apr. 18, 2006, 

http://www.techweb.com/wire/networking/185303601. IP telephony faces competition from third-party 

providers such as Vonage, while video on demand services are now beginning to see competition from 

third-party sources. See, e.g., Saul Hansell, Smaller Video Producers Seek Audiences on Net, N.Y. TIMES, 

Oct. 6, 2005, at C1, available at 

http://www.nytimes.com/2005/10/06/technology/06video.html?ei=5090&en=042ceaad45ac8536&ex=1286

251200 (smaller producers trying to bypass traditional TV networks and sell directly to consumers over 

Internet). 

331 See Farrell & Weiser, supra note 318, at 109-10. 

332 See id. at 107 (“Participating in, or dominating, the applications market can help a platform monopolist 

to price discriminate; this objective may make even inefficient vertical leveraging profitable.”). 
74

 The assumptions underlying these concerns are controversial. First, to the extent 

that such concerns about vertical integration depend on the vertically integrated entity 

having significant market power in a relevant broadband Internet access market, there is 

considerable disagreement as to whether such market power exists.333 Even if an access 

provider has sufficient market power to discriminate against competitors in 

complementary content or applications markets, there remains the question of whether it 

has sufficient incentive to do so. In an oft-cited article suggesting that there are 

legitimate concerns about vertical integration in broadband markets, Farrell and Weiser 

(both of whom participated in the Workshop) observed that an access provider, 

depending on various contingencies, might or might not have sufficient incentives to 

block competition in content or applications markets.334 In that article, Farrell and 

Weiser argue that “[p]rice discrimination need not in itself be inefficient or anticonsumer, 

but the platform monopolist’s desire to price discriminate can . . . lead it to exclude 

efficient competition or price competition in complementary products.”335 They further 

argue, however, that “platform monopolists” will balance the fact that the platform 

business is more valuable when complements are supplied efficiently against the 

possibility that “competition in the complement can sometimes threaten the primary 

monopoly.”336

 Others argue that countervailing incentives are dominant and that discrimination 

problems are merely hypothetical.337 Specifically, they assert that a broadband access 

provider’s chief incentive is to maximize the value of its core business – its network – to 

present and potential customers.338 Because that value depends centrally on the content 

and applications to which the network provides access, several Workshop participants 

maintained that providers would not have an adequate incentive “to limit their end users’ 

experience on the public internet.”339

 

333 Chapter VI of this Report, infra, discusses more fully the present and (likely) future state of competition 

in broadband access markets. 

334 See Farrell & Weiser, supra note 318, at 100-01.

335 Id. at 108. 

336 Id. at 109. 

337 See, e.g., Lenard, Tr. I at 195. See also U.S. INTERNET INDUS. ASS’N, NETWORK NEUTRALITY AND 

TIERED BROADBAND (2006), available at http://www.usiia.org/pubs/neutrality.doc. 

338 See Lenard & Scheffman, supra note 306, at 18-19 (“[U]nder any market structure, the platform 

provider has a strong incentive to maximize the value of the platform to consumers . . . . Broadband 

providers benefit from having applications and content markets that maximize value to their customers. 

Anything that detracts from user value will also reduce the demand (and hence the price that can be 

charged) for the platform.”).

339 Thorne, Tr. II at 42-43; see also Sidak, Tr. I at 104 (“Network operators provide a complementary 

service to Internet content. They do not have an interest in reducing the supply of a complement.”). 
75

Thus, the degree to which a last-mile broadband access provider has a sufficient 

incentive to discriminate against competing content and applications is an empirical 

question. The broadband provider must weigh potential profits from additional revenue 

from additional sales of its own content, against potential losses stemming from the 

diminution of content or applications that consumers view as essential complements to 

the access service. Certain net neutrality proponents have cited the Madison River matter 

as evidence that the incentive to discriminate is, or could be, sufficient to prompt an ISP 

to block a rival’s application.340 Opponents of net neutrality regulation, noting a dearth 

of similar controversies, have argued that Madison River represents a rare and distinctive 

case that is unlikely to recur in the marketplace.341

 There is the further empirical question of whether such discrimination against 

content or application providers would be harmful, on balance, were it to occur.342 In the 

short run, consumers of content or applications could face reduced choice or higher 

prices, and, in the long run, such discrimination could discourage entry into content or 

applications markets343 or innovation in them.344 On the other hand, certain forms of 

discrimination might have mixed or even positive implications for certain consumers. 

For example, when a seller of one good uses a complementary good as a metering device, 

excluding rivals from selling the complementary good may facilitate price discrimination 

that is favorable to the marginal consumer.345 It appears that, thus far, little attention has 

been paid in the net neutrality debate to the question how possible harms and benefits 

from such discrimination might be assessed in the broadband Internet access context. 

 

340 See, e.g., SAVE THE INTERNET, THE THREAT IS REAL, http://www.savetheinternet.com/=threat#examples

(last visited June 12, 2007). For an overview of the Madison River matter, and diverse views on its 

significance, see Chapter IX, text accompanying notes 713-18, infra. 

341 See, e.g., Pepper, Tr. I at 89-90. As noted in the previous footnote, the possible implications of the 

Madison River matter are discussed more fully in Chapter IX, infra. It should be noted that, despite 

disagreements about the particulars of Madison River and its significance as a model case, many opponents 

of net neutrality view the blocking conduct at issue in Madison River as problematic. See, e.g., Kahn, Tr. I 

at 186. 

342 See Farrell, Tr. I at 156. 

343 See Farrell & Weiser, supra note 318, at 110-11 (citing DOJ’s challenge to General Electric’s licensing 

policies for medical imaging equipment). 

344 See id. at 113-14. 

345 For example, A.B. Dick Co., which had a patent on mimeograph machines technology, required its 

machine customers to buy ink from A.B. Dick. Heavy users of the machines used more ink, and therefore 

paid more to A.B. Dick, than light users. Thus, A.B. Dick was able to price discriminate among its 

customers. Had A.B. Dick been allowed to sell only the machines, it likely would have sought to maximize 

profit by setting a price for the machine that would have been prohibitory for smaller users. In this 

example, low-volume users benefit but high-volume users may be worse off. See DENNIS CARLTON &

JEFFERY PERLOFF, MODERN INDUSTRIAL ORGANIZATION, 333-35 (4th ed. 2005); see also TIROLE, supra

note 322, at 148 (1988) (“The important caveat here is, of course, that the prohibition of a tie-in sale makes 

it more likely that the manufacturer serves only the high-demand consumers.”). 
76

 2. The Quality of Non-prioritized Service346

 Some net neutrality proponents have suggested that an access provider’s ability to 

charge a premium price for priority service could create an incentive to underinvest in the 

quality of best-efforts or other non-prioritized services, or even to degrade them. That is, 

there is a concern that a provider offering prioritization will lower the quality of nonprioritized service in order to make its prioritized service more attractive to consumers of 

such services. This concern generally follows the recent “damaged goods” literature in 

economics, which seeks to identify the conditions under which firms intentionally will 

damage or degrade some units of a good to enable the firms to charge higher prices for 

others.347 

 Net neutrality opponents have argued that the incentives to degrade the quality of 

non-prioritized services will be exceeded by countervailing, procompetitive incentives.348 

Just as blocking highly valued competing content would reduce the value of access 

services, so too would reducing the general quality level of Internet access carrying both 

competing and non-competing content. Opponents further argue that, because the 

Internet inevitably will experience some congestion, the possibility of premium or 

priority services is critical to dealing with such congestion efficiently, thereby allocating 

resources where consumers value them the most.349 

As with direct discrimination against competing content or applications, such 

incentives are subject to “conflicting forces,”350 and both their likelihood and – should 

such discrimination occur – severity present empirical questions that cannot be answered 

in the abstract. 

B. Potential Problems Independent of Last-mile Market Power 

Network neutrality proponents also have identified two sorts of harm that could 

occur as a result of certain contracting practices even in a competitive last-mile access 

 

346 See infra Chapter V for a more detailed discussion of the issues regarding data prioritization by Internet 

service providers and other network operators. 

347 See generally Raymond Deneckere & R. Preston McAfee, Damaged Goods, 5 J. ECON. & MGMT.

STRATEGY 149 (1996). 

348 See, e.g., Lenard, Tr. I at 178 (“Competitors[’] content can increase subscribership at very low, or 

perhaps even zero, marginal cost. So it’s not going to be in the provider’s interest to block content that 

consumers want, and thereby lose subscribers that are going to be high-margin subscribers.”). 

349 See, e.g., Sidak, supra note 287, at 380 (“To achieve a Pareto-efficient usage of the network, a network 

operator must have the right to prioritize content to maximize economic welfare and minimize the 

aggregate welfare losses associated with best-efforts delivery.”). See also supra Chapter I for a discussion 

of Internet data congestion. Several Workshop participants made the related point that Ramsey price 

discrimination is an “efficient way to recover fixed costs.” See Yoo, Tr. II at 217; Lehr, Tr. I at 38. 

350 Farrell, Tr. I at 205. 
77

market. These are the so-called terminating access monopoly problem and the potential 

balkanization of the Internet. 

 1. The Terminating Access Monopoly Problem

 One concern raised by net neutrality proponents relates to broadband providers’ 

potential interest in charging content providers for carrying their content over the last 

mile of the Internet. In particular, access providers might seek payments independent of 

any charges for prioritized content or application delivery. Net neutrality proponents 

have noted that such a practice would be analogous to a situation in telephony, in which 

the terminating telephone network charges the calling party’s network a termination 

fee.351 There, for example, if a wireline customer calls a cell phone, the wireline network 

pays the cell phone network a termination fee, typically calculated on a per-minute basis. 

The ability of the terminating network to charge a fee for delivering traffic to its own 

customers is known as the terminating access monopoly problem because an end user’s 

network is a “monopolist” for anyone who wishes to connect to that end user.352

 In the context of broadband Internet access, broadband providers might want to 

charge content or applications providers for delivering content or applications to end 

users over the last mile. As noted above, such charges could apply to both best-efforts 

and prioritized routing. Such charges would have the potential to create two different 

types of consumer harm. First, in the short run, they could raise the price to consumers of 

content and applications. Specifically, charges to content and applications providers 

would raise their costs; in the face of higher costs, such providers are likely to try to 

recoup at least some of those costs via the prices they seek to charge consumers. At the 

margin, higher prices will tend to reduce usage, lowering consumer welfare.353

 There have been instances in the telecommunications area in which terminating 

access charges have resulted in substantial end-user fees. A Workshop participant 

provided the following example to demonstrate how such fees might increase prices and 

thus reduce consumer demand for a particular product: Skype (a VoIP provider) 

customers in Europe are charged no usage-based fees for Skype-to-Skype calls. Skypeto-landline phone calls are charged approximately two cents per minute, however, 

because European landline terminating access charges are about two cents per minute, 

and Skype-to-cell phone calls are charged 21 cents per minute because European cell 

phone termination charges are about 21 cents per minute.354 In the United Kingdom, 

where the per-minute price is 21 cents (due to the access charges), the average usage is 

only 150 minutes per month. In contrast, in the United States, where the average price 

 

351 Id. at 154. 

352 See, e.g., Patrick DeGraba, Central Office Bill and Keep as a Unified Inter-Carrier Compensation 

Regime, 19 YALE J. ON REG. 37, 47 (2002). 

353 See Farrell, Tr. I at 171. See also Jean-Jacques Laffont, Patrick Rey & Jean Tirole, Network 

Competition: I. Overview and Nondiscriminatory Pricing, 29 RAND J. ECON. 1, 10-11 (1998). 

354 Wilkie, Tr. I at 171. 
78

for the marginal minute of cell phone use is about seven cents, the average user talks on a 

cell phone for about 680 minutes per month.355 

 A countervailing effect could mitigate the potential harm from termination 

charges in the context of Internet access. To the extent that broadband providers collect 

termination charges on a per-customer basis (or on a usage basis that depends on the 

number of customers), the broadband provider has an incentive to lower the subscription 

price to increase the number of subscribers from which it can collect access revenues.356 

Also, some content providers whose business model is based chiefly on advertising 

revenue may choose to retain that model if they are charged termination fees that are 

sufficiently small. Here, again, the ability to collect such access fees creates an incentive 

for the broadband provider to lower subscription rates. However, it may also cause 

certain marginal, advertiser-supported content to become unprofitable and thus to exit the 

market. 

 The second type of potential harm from termination charges is a long-run harm. 

Broadband providers that can charge content and applications providers terminating 

access fees might be able to expropriate some of the value of content or applications from 

their providers.357 If so, the incentives to generate such content and applications will be 

reduced; in the long run, consumer choice of content or applications could be reduced as 

well. One Workshop participant suggested that the greater ubiquity of Internet content – 

relative to cell phone content – might arise from the fact that, historically, the networks 

over which Internet content is downloaded have operated under regulations limiting 

terminating charges, whereas cell phone networks have not.358

 Some net neutrality opponents argue, however, that termination and related fees 

may be the most efficient way to deal with what they see as inevitable Internet 

congestion, routing time-sensitive and time-insensitive traffic during periods of 

congestion according to the relative demand for content and applications.359 Moreover, 

they argue that broadband providers must be able to charge directly and explicitly for 

desired routing to have the proper incentives to invest efficiently in the necessary 

infrastructure.360 Without delivery charges, they argue, content providers whose 

revenues come chiefly through advertising would have an incentive to free-ride on 

 

355 Id. at 172. 

356 Cf. Sidak, supra note 287, at 361 (ISP acts as intermediary and needs end users to demand content).

357 Farrell, Tr. I at 155. 

358 Wilkie, Tr. I at 199. 

359 See, e.g., Lenard, Tr. I at 179. 

360 See id.
79

infrastructure investments. That could distort both the magnitude and distribution of 

infrastructure investments, as well as pricing elsewhere in the market.361

 These issues, as discussed above, also raise difficult empirical questions about the 

relative magnitudes of countervailing incentives in particular present and future market 

contexts. Also relevant are the relative costs of providing for certain possible 

infrastructure investments and the marginal costs of making various improvements 

available to different consumers. Although systematic, empirically-based answers to 

these questions have not yet been forthcoming, it is clear that ongoing infrastructure 

investment is substantial and that desired applications will require further investment 

still.362

2. Exclusive Content and Balkanization of the Internet 

 Commentators also have expressed concern about the potential balkanization of 

the Internet.363 The concern is that if broadband providers are allowed to sign exclusive 

deals with content and applications providers, end users may be unable to access much of 

the content and applications they desire through any single Internet service provider. 

 Net neutrality proponents have suggested that the experience of other markets 

with exclusive content arrangements is instructive. They have cited, for example, 

Australia’s experience with cable television. Australian regulatory authorities franchised 

two competing cable companies, but did not impose any program access rules.364 Thus, 

each cable company was able to develop proprietary content or sign existing program 

 

361 Several commentators have raised concerns about distributing the costs of infrastructure improvements 

required only for certain services across large groups of consumers who may not demand such services. 

One Workshop participant suggested that, in addition to demand for very basic broadband services, there 

appears to be continuing demand for narrowband, or dial-up, Internet access: “Most people who have dial 

up say they have no interest in broadband connections, according to the Pew Internet American Trust 

Foundation in a recent survey they did.” Wallsten, Tr. II at 47. 

362 See, e.g., id. at 46 (regarding ongoing investment). 

363 See, e.g., Bachula, Tr. II at 174 (“To compete in this global economy, we need a simple, inexpensive 

and open network, not a balkanized one.”). 

364 The program access rules promulgated by the FCC require any program owned by a cable company that 

is sent to any distributor via satellite to be made available to all program distributors. See In re

Implementation of Sections 12 and 19 of the Cable Television Consumer Protection and Competition Act 

of 1992: Development of Competition and Diversity in Video Programming Distribution and Carriage, 8 

FCC Rcd 3359 (1993) (first report and order) (implementing the Cable Television Consumer Protection 

and Competition Act of 1992, Pub. L. No. 102-385, §628(c)(2)(D), 106 Stat. 1460, 1494-95 (1992)). Any 

program owned by a cable company that is sent to distributors over terrestrial wire can be limited to any 

distributor that the owner desires. This is known as the “terrestrial loophole” because Section 628(c)(2)(D) 

only addresses satellite delivered programming. A rationale behind the loophole is that typically only local 

programming is distributed terrestrially, and this rule gives extra incentives to invest in local programming 

by allowing the developer to sell exclusive rights to distribute the programming. See NAT’L CABLE &

TELECOMMS. ASS’N, THE EXISTING PROGRAM ACCESS RULES ARE WORKING AS INTENDED (2007), 

available at http://www.ncta.com/DocumentBinary.aspx?id=564. 
80

networks to exclusive contracts. According to a Workshop participant, the result of this 

regulatory regime in Australia has been that virtually all available programming is carried 

on either one cable system or the other, but not both. Despite facing demographics in 

many regards similar to those of the United States, Australia’s cable industry is reported 

as having only a 22% penetration rate.365

Opponents of net neutrality have argued that certain exclusive arrangements may 

be necessary in some cases. One Workshop participant argued that “the ability to bundle, 

make exclusive deals, [and] otherwise have non-neutral business models, may be the key 

to facilitating entry.”366 The participant elaborated: “there are three pretty salient facts 

about the broadband business. One is that is a very young business[,] . . . the second is 

that it is a distribution business, and the third [is] that it is a business with very large fixed 

costs.”367 He also stated that “[n]on-neutral business models may very well be essential 

to provide sufficient revenues to cover the cost of investments”368 and that “exclusive 

deals . . . may be key to facilitating entry.”369

 In addition, net neutrality opponents have noted that there may be significant 

market pressures against exclusive dealing arrangements, as consumers accustomed to a 

broad range of content and application offerings may be unsatisfied with narrower ones. 

As one Workshop participant argued, “we have attempts at service providers putting 

together walled gardens. And they uniformly failed, right? AOL was a walled garden. 

People didn’t want it.”370

C. Potential Benefits of Vertical Integration 

 The potential costs of vertical integration by broadband providers into content or 

applications must be weighed against the potential benefits offered by vertical 

integration. The most-cited benefit is that the potential to earn additional profits from 

 

365 See Wilkie, Tr. I at 175. 

366 Lenard, Tr. I at 178. Lenard noted that “a possible example is the Clearwire / Bell Canada deal in which 

Clearwire entered into some sort of an exclusive deal with Bell Canada to provide services in exchange for 

a $100 million investment.” Id. Clearwire is a provider of wireless non-line-of-sight broadband access. It 

signed a deal with Bell Canada to make Bell Canada the exclusive provider of VoIP capabilities for 

Clearwire’s VoIP offering to its customers. As part of the deal, Bell Canada invested $100 million in 

Clearwire. See Press Release, Bell Canada Enters., Bell Canada and Clearwire Corporation Form Alliance 

(Mar. 8, 2005), available at http://www.bce.ca/en/news/releases/bc/2005/03/08/72179.html; see also Ed 

Sutherland, Clearwire Clouds VoIP Picture, WI-FI PLANET, Mar. 31, 2005, http://www.wifiplanet.com/columns/article.php/3494171 (noting that Clearwire blocks access to other VoIP services). 

367 Lenard, Tr. I at 176. 

368 Id. at 177. 

369 Id. at 178. Similarly, another Workshop participant suggested that perhaps there should be different 

rules governing the behavior of entrants than incumbents. See Rosston, Tr. I at 165. 

370 Pepper, Tr. I at 136-37. 
81

selling its content or applications to more customers will increase the vertically integrated 

firm’s incentives both to build out the network (i.e., extend its reach) and to invest in 

technology that will increase the types and/or amount of content it can offer.371 In 

addition, there may be technical or information efficiencies for a vertically integrated 

entity, even where a platform provider tries to cooperate with independent content or 

applications developers.372 

 It is well understood that, when a delivery system owns the product it delivers, the 

delivery system has a greater incentive to serve more consumers.373 Thus, sharing in the 

profits of content gives a broadband provider a greater incentive to build out its network 

and to lower access prices to reach additional customers. In addition to giving 

incumbents incentives to expand, net neutrality opponents also argue that certain vertical 

relationships might be beneficial to generating new entry, “and some of these vertical 

relationships that people are concerned about . . . may increase the profits of a new 

entrant, [and] may be the thing that is necessary in order to get a new entrant . . . to 

compete.”374 

 A second potential benefit from vertical integration is increased choice of content 

and applications. Just as increased content revenue can provide an incentive for build-out 

of a network, so too can the prospect of new subscribers create an incentive to invest in 

content or applications that might attract additional customers – even if the revenues that 

would be derived from the content or applications as stand-alone offerings would not 

cover their costs.375 For example, according to a Workshop participant, vertical 

integration by cable television providers in the early days of the cable industry gave those 

providers additional incentives to invest in content to make the entire cable package more 

attractive to potential subscribers.376

 

371 See Rosston, Tr. I at 165 (“[B]ut on the other hand you do need to have incentives to – for the 

incumbents to upgrade their networks, as well, and to try to provide higher speed access.”); see also

Lenard, Tr. I at 177. 

372 See, e.g., Farrell & Weiser, supra note 318, at 102. 

373 See id. at 101. 

374 Lenard, Tr. I at 164-65. 

375 Compare Farrell, Tr. I at 204 (“[A]lthough, as an economist, I certainly agree that there are kinds of 

innovation for which you really do need to make sure that the financial incentives are there, I also think it’s 

important to remember that openness to many, many millions of people doing little stuff is quite 

important.”), with Rosston, Tr. I at 214 (“[W]hen you say ample supply of content on the Internet, it’s true, 

there is a lot of stuff out there. But it may not be the right stuff that people want to use that, for example, 

may cause people to increase their demand for broadband, even though it may be a zero profit on the 

content side.”). 

376 Rosston, Tr. I at 197. 
82

D. Brief Summary and Remaining Questions 

 The prospect of increased vertical integration of broadband services raises various 

and competing concerns. In particular, vertical integration in broadband Internet goods 

and services markets could prompt Internet access providers to block or degrade content 

or applications or charge higher prices. On the other hand, because vertical integration 

may offer certain efficiencies that are procompetitive and pro-consumer, and because 

potential harms are contingent, not all vertical integration is problematic. In particular, 

some degree of vertical integration may facilitate investment in infrastructure, investment 

in content or applications, optimization of fit between content and delivery systems, and 

pricing benefits for certain consumers. Some degree of vertical integration may also 

facilitate entry, and thereby increase competition, in broadband Internet access markets. 

The balance between competing incentives raises complex empirical questions and may 

call for substantial additional study of the market generally, of local markets, or of 

particular transactions. 

 There are also important questions regarding the costs of various proposed means 

of addressing the harms vertical integration may cause, should they arise. For example, 

one Workshop participant who has done considerable work to chart possible harms from 

vertical integration in this market suggested that a vertical separation “could be part of 

the discussion,”377 but that it is not necessarily cost-justified, and that the debate on net 

neutrality has not yet provided “any good exposition of answers to that question.”378 

Another participant suggested that “the terminating monopoly problem, the problem of 

final interconnection is real,” but stated that existing laws and regulations were adequate 

to deal with it and that one ought to “proceed with prudence and caution.”379 

 

377 Farrell, Tr. I at 213 (emphasis added). 

378 Id. at 215. 

379 Wilkie, Tr. I at 218. 
83

V. DATA PRIORITIZATION

 One of the central issues in the network neutrality debate is network operators’ 

use of prioritization – that is, differential treatment of Internet traffic on the basis of 

certain characteristics of the data. As discussed in Chapter I, to date, the Internet has 

used primarily a best-efforts protocol that transmits packets on a first-in-first-out basis. 

Widespread adoption of new prioritization technologies that can provide specialized 

handling for particular packets based on their application type, source, or content could 

result in significant changes in the functioning of the Internet. 

 Prioritization can occur in numerous forms. For purposes of this Chapter, 

prioritization refers to the provision of higher or lower transmission priority to packets of 

data. Such priority can be given to packets by different entities in the provision and 

delivery of data, through various technologies and business models. These prioritization 

efforts can occur throughout the network, including at the last-mile and in the 

backbone.380 As described in Chapter I, last-mile ISP prioritization may involve 

utilization of special algorithms in routers to prefer packets based on their application 

type, source, or content by, for example, channeling them into separate bandwidths, 

scheduling them ahead of other packets, providing shorter paths to their destinations, and 

making them less likely to be dropped should the number of waiting packets become too 

large.381 

 To some extent, long-standing techniques provide a means of traffic handling 

whose effects are similar to the effects of prioritization. For example, a content or 

applications provider may have a preferred connection to the Internet through its “firstmile” ISP, via a higher-capacity link, resulting in faster uploads than those available to 

other such providers.382 Recently, though, technologies for prioritization have 

significantly increased the options for favoring some transmissions and disfavoring 

 

380 While some prioritization does occur on the backbone, prioritization generally has not been necessary – 

nor would it apparently have much effect – in the backbone, given the large capacity of the networks 

comprising the backbone. See Ryan, Tr. I at 239-40. However, new bandwidth-intensive technologies may 

test backbone capacity in the future. 

381 Peha, supra note 36, at 5-6. 

382 Id. at 5. This option, priority at the “first mile” rather than the “last mile,” prioritizes the upload of some 

data packets over others, though Peha claims that “it alone does not allow the network to discriminate 

among traffic from a given source.” Id. Also, a recent OECD report notes that “administrators have 

implemented traffic shaping to smooth out traffic flows and prevent bottlenecks, typically in an effort to 

improve the user’s experience” in a way that did not use “high-speed deep-packet inspection and 

prioritisation.” ORG. FOR ECON. COOPERATION & DEV., INTERNET TRAFFIC PRIORITISATION: AN 

OVERVIEW 8 (2007) [hereinafter OECD Report], available at

http://www.oecd.org/dataoecd/43/63/38405781.pdf. Further, as described in Chapter I, network operators 

can provide separate, dedicated bandwidth for certain applications such as video through VPNs. That is, 

not all broadband IP communications need be part of the Internet. Such use of VPNs currently does not 

raise much objection, see, e.g., Davidson, Tr. I at 229, though some commentators are concerned that 

continued growth of this practice eventually could decrease the total amount of bandwidth available for the 

wider Internet and possibly transform the Internet itself into a “slow lane.” See Lehr, Tr. I at 63. 
84

others. The development of such technologies appears to be based in part on the 

increasing demand for content and applications that benefit from improved quality of 

service (“QoS”), which “typically involves the amount of time it takes a packet to 

traverse the network, the rate at which packets can be sent, and the fraction of packets 

lost along the way.”383

 Even with prioritization, ISPs or other network operators may not be able to 

guarantee a promised level of QoS because network operators can only control for 

delivery within their own networks and not for delivery throughout the rest of the 

Internet’s multiple networks (absent agreements between networks to honor each other’s 

QoS determinations).384 Nevertheless, within the last-mile ISP’s network, prioritization 

could allow the ISP to offer different levels of QoS. 

 The debate over prioritization focuses on disagreements about what advantages 

prioritization may have for ISPs, content and applications providers, and end users, and 

under what circumstances; whether it entails countervailing harms; what the effects on 

broadband prices, innovation, and investment may be; and whether there are better 

alternatives. As a result of numerous conflicting views and concerns, policy makers 

considering whether to regulate prioritization need to examine the complexity of 

prioritization and its potential implications for the future of the Internet. 

 This Chapter is organized as follows. Section A addresses the potential reasons 

for ISPs and other network operators to prioritize data within their networks; Section B 

examines the feasibility of network operators expanding the capacity of their networks as 

an alternative to data prioritization; Section C discusses the several potential types and 

uses of data prioritization; and Section D provides concluding observations on 

prioritization. 

A. Why prioritize data? 

 The Internet provides access to a vast range and volume of content and 

applications, for a huge number of firms and individuals providing and/or using them. 

Nonetheless, transmission capacity is finite, and peak demand at certain periods and 

locations may strain a network. Networks use different technologies with different 

overall capacities. With increasing numbers and sizes of transmissions to increasing 

numbers of users, congestion – especially at the last mile – can be a problem. From the 

perspective of end users, the best-efforts delivery approach provides an adequate 

experience for many uses, but congestion in a best-efforts context may render use of 

certain content and applications undesirable, and perhaps even impossible. 

 

383 Peha, supra note 36, at 5. Some commentators use the term more broadly to include aspects such as 

security controls. 

384 OECD Report, supra note 382, at 9. As one company has noted in its comments to the Commission, the 

“current ‘best efforts’ Internet only permits a packet of data to arrive at its destination as fast as the slowest 

network over which it traverses.” Alcatel-Lucent, Public Comment 1, at 5. See also supra note 120. 
85

 Some content and applications, such as live streaming video, some VoIP 

services, and online games, are latency-sensitive; that is, if packets do not arrive 

sufficiently close together, the communication will be unsuccessful.385 Some 

transmissions, such as software downloads or movies, might be large enough that 

interference due to congestion would cause user frustration and cancellation. From the 

perspective of providers of such content and applications, the value of their product may 

be substantially enhanced by mechanisms to avoid congestion problems, which could 

include prioritization. The availability of prioritization also could enhance innovation 

with respect to new applications that require higher QoS for successful use.386 On the 

other hand, some argue that the need for enhanced QoS is the exception rather than the 

rule. As one commentator observed, “watching prerecorded audio or video streams 

doesn’t need QoS, because you can use buffering.”387 Moreover, according to 

commentators and industry participants, even “many VoIP systems seem to work pretty 

well without any special QoS support in the network.”388 

 Further, extensive use of some high-demand content and applications, such as 

peer-to-peer (“P2P”) file sharing, could overcrowd existing capacity and significantly 

interfere with access to even non-sensitive content and applications.389 From the ISPs’ 

perspective, the importance of providing successful transmission may at times necessitate 

the use of traffic-handling mechanisms, and prioritization of packets has become an 

option for such traffic handling.390 The value to both users and content and applications 

providers of avoiding congestion may provide opportunities for ISPs to increase both 

their own direct revenue and their customer base through prioritization. 

 In addition, the Internet provides users with a wealth of choices of content and 

applications. From any provider’s perspective, prioritization in delivery can be a means 

of making its offering better than those of its competitors – faster, more reliable, and 

more effective. For example, a provider of a high-quality, expensive application may 

choose, if given the opportunity, to pay for a high level of certainty that all its packets 

will arrive quickly, while an application that has a slightly greater tolerance for delay or 

 

385 For example, VoIP applications require their voice data packets to be received by the end user within 50 

milliseconds after they are first spoken. Otherwise, delay in the voice transmission degrades the VoIP 

experience so that a “real-time conversation” cannot occur. Peha, supra note 36, at 8. In contrast, e-mail 

data packets are not time-sensitive, and an additional delay of a few seconds (or even minutes) of the data 

packets making such an electronic text message does not significantly affect the user’s experience with this 

application. 

386 See Ryan, Tr. I at 241. 

387 Felten, supra note 36, at 9. 

388 Id.; see also Davidson, Tr. I at 274 (stating that “many providers of Voice Over IP do not believe that 

they need prioritization in order to offer their service, including [Google’s voice service]”). 

389 See supra Chapter I.C. 

390 See supra Chapter I.C. 
86

dropped packets may decline to pay for priority in an effort to keep costs down.391 From 

the ISPs’ perspective, the value placed by content and applications providers on priority 

treatment may create opportunities to increase ISP revenues, through general fees, 

partnerships, or financial interests in affiliated providers. 

 However, prioritization also could lead to countermeasures by some providers or 

users, leading ISPs to degrade a broader range of packets and/or fine tune their routers to 

deal with these circumventions, thus sparking an Internet “arms race” to provide or 

thwart prioritization.392 For example, a user could encrypt all traffic using a particular 

application, which may prevent the ISP from recognizing and deprioritizing the 

application; the ISP, in turn, could respond by deprioritizing all encrypted transmissions. 

The potential for such an arms race and the unpredictability of its outcome adds an extra 

level of difficulty to determining the potential value and effects of prioritization. 

B. Prioritization versus Capacity Expansion 

Some commentators predict a future of Internet traffic problems that will 

necessitate the use of prioritization technologies. For example, at the Workshop, a 

participant cited a report suggesting that if YouTube alone becomes a high-definition 

application, it would double the capacity needs of the entire Internet.393 Others believe 

that these concerns are overblown and that prioritization at the last mile will not be 

required if individual users who desire increased capacity pay for increased bandwidth.394 

 Network expansion to build out capacity at a rate that outpaces congestion might 

eliminate any need for prioritization. A Workshop participant explains this view: 

Note that the incentive to discriminate with respect to QoS and price is 

based on the assumption that there are limited resources. In fact, a 

network has a choice on that. Networks can deploy far more 

communications capacity than is usually needed, so congestion is simply 

not a problem.395

Another Workshop participant noted that his company’s backbone network has far more 

capacity than normally needed, which readily allows for bursts in usage, outages, and 

other circumstances.396 Similarly, the creators of the private Internet2 high-speed 

 

391 Schwartz, Tr. I at 257-58. 

392 See generally Lehr et al., supra note 131. 

393 McCormick, Tr. I at 244; see also Wolf, Tr. II at 146-48. 

394 See, e.g., Davidson, Tr. I at 231. 

395 Peha, supra note 36, at 8. 

396 Ryan, Tr. I at 239-40. 
87

network decided not to use prioritization techniques and instead relied on increased 

capacity at the last mile.397 

 Building and maintaining higher-capacity networks obviously creates costs, as do 

deploying and maintaining prioritization technologies. At issue is whether the costs of 

having enough capacity for peak loads, leaving substantial excess capacity at other times, 

outweigh the (direct and indirect) costs of using prioritization techniques instead. A 

participant has commented that “[e]conomically, it doesn’t make sense that the solution is 

always to build more. That’s going to involve carrying a lot of excess capacity, which is 

going to be expensive.”398 In contrast, another participant has suggested the possibility 

that higher-capacity networks could provide cost savings through the use of cheaper 

processors that do not engage in sophisticated packet inspection and allow for simplified 

billing of capacity usage rather than using complicated prioritization algorithms.399 The 

1990s saw dramatic improvements in fiber-optics technology that forestalled the need for 

more expensive prioritization technologies to handle capacity issues.400 However, 

progress in routing technology may upend this trend, and experts disagree on the question 

of whether network operators will have a greater incentive to continue increasing 

capacity or to turn to new prioritization technologies.401 Opportunities for additional 

revenue through prioritization and costs attendant on these opportunities, as discussed 

below, also could be factors.402 In the end, “[t]he best strategy depends on whether 

processing or communicating gets cheaper at a faster rate.”403 

Another issue is whether broadband capacity can continue without limit to expand 

faster than the demands placed on it by new content and applications. For example, one 

last-mile network operator has estimated that “peer-to-peer file sharing services such as 

 

397 Bachula, Tr. II at 169 (“It was cheaper [for Internet2] to provide more bandwidth than to install these 

sophisticated quality of service prioritization techniques. With enough bandwidth in the network, there is 

no congestion, and video bits do not need preferential treatment. All the bits arrive fast enough even if 

intermingled.”). A Workshop participant noted, however, that Internet2 operates for a limited number of 

academic users and suggested that it should not be a model for the commercial Internet. Wolf, Tr. II at 

175. 

398 Schwartz, Tr. I at 255. 

399 Peha, supra note 36, at 8. 

400 Id.

401 Id. at 8-9. 

402 One means for ISPs to reap additional income from excess capacity, as opposed to prioritization, is 

selling available extra capacity to providers or users as “boosts” of extra bandwidth for such specific tasks 

as downloading a movie or software. E.g., Marguerite Reardon, Comcast Gives Broadband Users a Speed 

Boost, CNET NEWS.COM (June 1, 2006), 

http://news.com.com/Comcast+gives+broadband+users+a+speed+boost/2100-1034_3-6079070.html. 

403 Peha, supra note 36, at 8. 
88

BitTorrent already consume more than one-half of Internet bandwidth.”404 Given the use 

of P2P and the possibility of other new bandwidth-intensive technologies such as highdefinition Internet video, capacity expansion alone may not be capable of warding off 

congestion.405

 Because there is little publicly available data regarding current traffic rates, it is 

difficult to ascertain the extent of congestion problems at this time.406 The greater the 

actual or perceived congestion effects are, the greater are the incentives for each party 

involved to adopt approaches for active traffic handling. A variety of prioritization 

approaches have the potential to address congestion. The discussion below focuses on 

the provision of last-mile broadband access by DSL and cable modem services. Other 

broadband platforms (such as wireless, satellite, or broadband over powerlines) may have 

different overall capacity constraints and, therefore, may entail different tradeoffs 

between capacity increases and prioritization to handle increasing amounts of traffic. 

C. Types and Uses of Data Prioritization 

 1. Prioritization Based on Type of Application 

 The individual types and uses of prioritization are discussed separately because 

their advantages and disadvantages vary significantly. Perhaps the least controversial 

type of prioritization is uniform application-based prioritization or “access tiering,” under 

which all applications of a certain type, such as VoIP or video, are in the same access tier 

and receive equal priority in delivery. 

 ISPs can manage traffic flow based on application type by, among other methods, 

identifying and assigning low priority to high-bandwidth applications to preserve 

sufficient bandwidth for other applications.407 For example, routers that can identify P2P 

packets could allocate such traffic in a number of ways to prevent them from 

overwhelming the network. Routers can be programmed to prioritize packets so that a 

portion of the network is able to run non-P2P traffic without competing with high-bit-

 

404 See Verizon Communications Inc., Public Comment 60, at 14. 

405 See Xiaojun Hei, et al., Polytechnic University, A Measurement Study of a Large-Scale P2P IPTV 

System 1 (Nov. 2006), available at http://cis.poly.edu/~ross/papers/P2PliveStreamingMeasurement.pdf

(“With the widespread adoption of broadband residential access, IPTV may be the next disruptive IP 

communication technology. With potentially hundreds of millions of users watching streams of 500 kbps 

or more, IPTV would not only revolutionize the entertainment and media industries, but could also 

overwhelm the Internet backbone and access networks with traffic.”). But see id. at 13 (“Our study 

demonstrates that the current Internet infrastructure is capable of providing the performance requirements 

of IPTV at low cost and with minimal dedicated infrastructure.”). 

406 Lehr, Tr. I at 36. 

407 Peha suggests ISPs may deprioritize the packets of applications that do not include within themselves 

mechanisms to reduce transmission rates in times of congestion. Peha, supra note 36, at 7. 
89

demand P2P traffic.408 Similarly, routers can allocate peak-time bandwidth by providing 

certain types of traffic with only off-peak priority. For example, an Australian ISP 

assigns low priority to P2P traffic between noon and midnight. Such a policy is meant to 

create incentives for users who use P2P technologies to shift such usage to off-peak 

hours.409 

 Conversely, ISPs can identify data packets that are more sensitive to delayed 

delivery than others and give these packets higher priority to ensure timely delivery. For 

example, VoIP packets may be given priority by routers because delay in delivering each 

packet of voice data could make the voice communication unacceptable. A router 

algorithm could meet the QoS needs of such applications by identifying each application 

type and its urgency level and assigning priority to time-sensitive packets. As one 

company described its routers’ functionality, “preferential treatment can be given to 

latency-sensitive applications during periods of increased network congestion,” and 

“[p]acket marking based on application classification . . . enables routers upstream or 

downstream . . . to prioritize traffic based on individual application requirements and 

address congestion at relevant network points.”410 

 Some commentators have suggested that it will be difficult to define access tiers 

and to categorize packets, given the heterogeneity of applications and the constantly 

evolving nature of Internet usage.411 Also, ISPs and providers may disagree on the 

appropriate tier for particular applications. For example, disputes could emerge 

regarding whether applications belong in the voice tier or video tier – especially as 

applications converge. 

 a. Charging for Application-based Prioritization

 Although the use of application-based prioritization algorithms to improve 

delivery of certain types of applications (e.g., latency-sensitive ones) or deprioritize 

others (e.g., P2P) purely as an internally defined traffic-management tool has not raised 

significant controversy, the same cannot be said of the prospect of ISPs and other 

network operators charging fees for such application-based prioritization. As explained 

by an opponent of network neutrality, when an ISP seeks payment for priority based on 

 

408 Oregon State University ResNet: Bandwidth, Security & Architecture, 

http://oregonstate.edu/resnet/guides/security_architecture.php (last visited May 17, 2007) (“Web browsing, 

SSH, telnet and games are set to a higher priority. . . . All other traffic bound for the Internet (not counting 

P2P) such as ftp, streaming audio or video, is given a lower priority. If the bandwidth is available, then the 

only limit is our bandwidth cap. Peer to Peer (P2P) is given the lowest priority.”). 

409 OECD Report, supra note 382, at 31. In another example, a United Kingdom ISP recently announced 

traffic-shaping policies that created priority categories based on the type of application and the user’s 

broadband service plan. Id. P2P traffic is slated for the next-to-last level of priority. Id. 

410 CISCO SYS., CISCO SERVICE CONTROL: A GUIDE TO SUSTAINED BROADBAND PROFITABILITY 4-5 (2005), 

available at http://www.democraticmedia.org/PDFs/CiscoBroadbandProfit.pdf. 

411 See Lehr, Tr. I at 32-33. 
90

type of application, it provides a revenue stream to the ISP to support the service and, 

perhaps, additional investment in its network.412 Further, as one commentator has 

maintained, “[i]f broadband companies did not believe they could maximize the value of 

the technology by selling premium products to purchasers willing to acquire them, they 

would likely invest in other areas.”413 

 ISPs receiving payments from content and applications providers for priority 

service might choose to lower access prices for users and thus increase broadband 

penetration, providing even greater value to providers. The market for broadband 

Internet access has been described as a “two-sided market” because “both consumers and 

content/applications providers derive value from the sale of broadband access.”414 An 

ISP has asserted that last-mile ISPs can “allocate charges based on each side’s 

willingness and ability to pay,” which will allow last-mile ISPs to “keep prices for 

consumers lower than they would otherwise be.”415 Further, a Workshop participant has 

argued that charging providers for prioritization would “increase economic welfare by 

increasing broadband penetration[] because it would enable network operators to 

subsidize access prices for income constrained or price-sensitive end-users who currently 

forgo broadband entirely.”416 On the other hand, according to some network neutrality 

proponents, users could experience higher costs to access Internet content and 

applications, reflecting their costs for priority service.417 Some proponents further 

suggest that network operators already receive significant fees for access by content and 

applications providers.418

 

412 Verizon Communications Inc., Public Comment 60, at 13-14. See also Telecommunications Industry 

Association, Public Comment 56, at 4 (“Broadband Internet access service is no different tha[n] any other 

market. Network neutrality rules that restrict [differentiated pricing and product offerings] could end up 

harming consumers and driving up costs because network providers will lose the incentive to maintain and 

upgrade their increasingly congested networks.”); U.S. Chamber of Commerce, Public Comment 58, at 4 

(“Mandating ‘net neutrality’ provisions will create regulatory barriers that deter investment in these highspeed broadband networks, which will ultimately hurt every American and, certainly, the nation’s small 

businesses.”). 

413 American Bar Association Section of Antitrust Law, Public Comment 2, at 6. 

414 Verizon Communications Inc., Public Comment 60, at ii. 

415 Id. 

416 Sidak, supra note 287, at 362; see also Schwartz, Tr. I at 258; Kahn, Tr. I at 188-89 (“Would you say 

that newspapers should be prohibited from charging advertisers, and should get their money entirely from 

the people who buy the newspapers?”). 

417 “‘It seems to me that if broadband operators are charging Google and Amazon for the use of their 

network, then those costs will automatically get passed on to consumers,’ said Gigi Sohn, president and cofounder of Public Knowledge, a Beltway advocacy group. ‘And ultimately that will lead to higher prices 

for consumers.’” Marguerite Reardon, Without “Net Neutrality,” Will Consumers Pay Twice?, CNET

NEWS.COM (Feb. 7, 2006), 

http://news.com.com/Without+Net+neutrality,+will+consumers+pay+twice/2100-1034_3-6035906.html.

418 See, e.g., Davidson, Tr. I at 289; Tulipane, Tr. I at 264. 
91

 Charging for application-based prioritization raises two further issues of 

substantial concern to commentators. First, there is disagreement among participants in 

the network neutrality debate on whether creating priority “fast” lanes necessarily would 

result in degraded service in the remainder of a given network. For example, a Workshop 

participant has stated that prioritization in the last mile “degrades competing services, and 

creates incentives to relegate some of those competing services to a slow lane . . . [given] 

that the only way that you can have a fast lane that you can charge for, that is useful, is if 

there are also slow lanes that are less useful, and less attractive.” 419 By contrast, an ISP 

has asserted that “providing better quality to some does not necessarily entail inferior 

service for others; next-generation broadband networks will have enough capacity and 

functionality to provide superior services across the board.”420 

 ISPs have incentives to maintain sufficient best-efforts service that allows access 

to all content and applications providers because the value of an ISP priority service to a 

provider would be affected by the size of the ISP’s customer base. ISPs may lose 

subscribers if they do not provide sufficient access. Some Workshop participants argued, 

however, that ISPs also have an incentive to create scarcity of bandwidth so that “they 

can charge more, restricting output in order to raise prices, and charging monopoly 

rents.”421 Whether preferred priority arrangements lead to an ineffective slow lane likely 

would depend on various factors, including the extent of capacity constraints, application 

and content requirements, and the demand for prioritization services, as well as the 

potential tradeoff in income streams from content and applications providers paying for 

priority transmission and from customers that demand non-prioritized Internet access. 

 Second, access-tier prioritization could require content and applications providers 

to make payment arrangements with multiple last-mile ISPs worldwide. Currently, as a 

general matter, both providers and users have contracts only with their own ISPs. Each 

ISP and other network operator has arrangements with others that result in the delivery of 

the packets across networks. Some commentators have observed that, if last-mile ISPs 

impose charges on remote providers for priority delivery to their own customers, 

providers would need to make arrangements with every such ISP to obtain priority 

treatment for packets directed to the ISPs’ customers.422 

 Aggregator services or other kinds of settlement services could simplify this 

situation.423 Despite an initial phase of multiplicity of arrangements, market forces may 

 

419 Davidson, Tr. I at 228-30; see also Lehr et al., supra note 131, at 19; CENTER FOR DEMOCRACY &

TECHNOLOGY, PRESERVING THE ESSENTIAL INTERNET 7-8 (2006), available at

http://www.cdt.org/speech/20060620neutrality.pdf. 

420 Verizon Communications Inc., Public Comment 60, at 17. 

421 See, e.g., Bachula, Tr. II at 170. 

422 See, e.g., Davidson, Tr. I at 226, 274-75. 

423 Payment settlement mechanisms for other two-sided markets, such as stock exchanges and credit cards, 

may provide helpful models. See Blumenthal, Tr. I at 287. 
92

lead to pooling of demand for Internet access via a common ISP424 or other companies 

offering to handle the multitude of transit negotiations for content and applications 

providers. Alternatively, fees for application-based prioritization might be incorporated 

into peering and other arrangements among network operators, so that the fees an 

applications provider pays to its own ISP would reflect the priorities granted by last-mile 

ISPs. The issue remains whether such arrangements between and among networks would 

be too complex to sustain. A Workshop participant, for example, stated that the 

methodology for charging for priority access has not been thought through as a technical 

matter and, if attempted, likely would not work at all.425

 2. Prioritization Based on Source

 Prioritization also could be based on the source of the data packet, that is, the 

particular content or applications provider. Prioritization by source would allow ISPs to 

sell differentiated transmission offerings to content and applications providers.426 An 

ISP, for example, could offer two or more levels of QoS, allowing providers to choose 

the priority level they are willing to buy for particular content or applications.427 This 

would create incentives for providers to determine accurately their data-transmission 

needs, and allow network operators to allocate their resources more efficiently. Providers 

that do not need peak performance or timing could pay less for less urgent prioritization 

or standard best-efforts delivery. Providers also could tailor their content and 

applications to account for these realities. For example, a VoIP provider could offer 

different on-peak and off-peak rates to its customers to mirror the rate structure of the 

ISP. A Workshop participant has stated that “pricing actually becomes a form of 

congestion control that has quantifiable advantages over more traditional technical 

approaches.”428 

 a. Source-based, Provider-selected Priority Levels 

 Source-based prioritization, in which the ISP simply offers different QoS levels at 

graduated prices to any interested provider, can, like paid application-based prioritization, 

provide the ISP with an income stream and the concomitant potential for profitability, 

expansion, innovation, and increased broadband deployment. Charges for source-based 

prioritization also may create incentives for applications providers to innovate in their 

 

424 OECD Report, supra note 382, at 5. 

425 Ryan, Tr. I at 287-88. 

426 ISPs also could offer priority transmission services based on the destination of the data (for example, 

data packets sent to a particular content or applications provider). 

427 Schwartz, Tr. I at 257. 

428 Peha, supra note 36, at 8. 
93

applications to minimize the level of priority they need.429 A QoS system for which each 

provider chooses whether to have higher-quality service for a charge could encourage 

new types of products.430 On the other hand, it could discourage innovative but capacitydemanding products by providers that cannot initially pay for a higher quality of service. 

 b. Source-based Prioritization and Preferential Arrangements 

 The most contentious issue regarding source-based prioritization appears to be 

ISPs favoring or disfavoring particular content and applications providers based on their 

identity, rather than the nature of their offering. For example, ISPs could favor affiliated 

or partnered providers. Network neutrality advocates argue that the ISP could act as a 

gatekeeper controlling which content and applications providers succeed and which fail – 

a role that could have a significant impact on the future face of the Internet. Some 

commentators who do not object to access tiering to resolve congestion problems do 

object to prioritization that discriminates among providers within a tier.431

 Prioritization based on source would allow a content or applications provider to 

differentiate its product through improved delivery. Such product differentiation could 

aid providers in competing with others offering otherwise similar products.432 In 

addition, ISPs that own or are otherwise affiliated with providers may give them priority 

service, for a lower charge than they make available to other providers for the same 

service, to the ISP’s ultimate financial benefit.433 Prioritization through preferential 

arrangements has the potential to provide ISPs with additional revenue, perhaps much 

more than other forms of prioritization. On the other hand, if a system of contracts 

develops between the ISPs and providers, it is possible that providers of the most popular 

content and applications could charge an ISP to make the providers’ offerings available 

to the ISP’s customers.434 

 Some commentators view network operators’ use of prioritization as potentially 

creating barriers to entry or unfairly using an ISP’s position with its customers to 

 

429 In this respect, the development of broadband itself was a means of obtaining higher QoS, and its 

increased capacity encouraged providers to create continually more complex content and applications, 

making narrowband a less and less useful access route. 

430 Yoo, Tr. II at 220 (using the example that Medtronic will only provide heart monitoring services if it can 

obtain guaranteed QoS in terms of response time). 

431 See, e.g., Windhausen, Jr., supra note 238, at iii (“Net Neutrality does not necessarily prevent network 

operators from offering levels of access, at higher rates, as long as the tier is offered on a nondiscriminatory 

basis to every provider . . . .”). 

432 Schwartz, Tr. I at 259. 

433 For example, Cisco’s marketing materials note that the option of higher priority delivery “provides 

added incentive for the nonfacility operator to partner with the service provider for joint delivery of quality 

services.” CISCO SYS., supra note 410, at 8. 

434 Davidson, Tr. I at 288-89. 
94

disadvantage competitors of its affiliated provider;435 others consider it an appropriate 

business model for ISPs and providers to seek growth and investment.436 Some believe 

competitive pressures will limit the use of such practices.437 Others believe that 

competition among ISPs is too attenuated438 or that information on the use of such 

prioritization is too inaccessible to provide a restraining force.439 

Source-based prioritization also may raise some of the same concerns as 

application-based prioritization, such as the adequacy of a best-efforts “slow lane.” 

Prioritization technologies enable not only complete blocking of disfavored content or 

applications, but also degrading of their delivery that may, in the limit, be tantamount to 

blocking.440 If an ISP enters exclusive deals for priority and simultaneously fails to 

provide for adequate delivery of non-priority packets, then the ISP could effectively 

eliminate the traditional ability of every user to reach every content and applications 

provider (and vice versa) with a single Internet interface.441 

 In addition, potentially significant transaction costs could be introduced if each 

provider must choose and communicate its desired level of QoS. Prioritization for 

preferred sources requires the creation of preferred source arrangements; that is, 

negotiations between providers and any and all remote ISPs. A Workshop participant 

pointed to cable television as an illustration of such a system – one that would entail 

complex negotiations between every content and applications provider and ISP, imposing 

substantial transaction costs that do not now exist for Internet transmissions.442 For many 

providers, especially new entrants, niche interest providers, and individuals posting 

content, the costs of obtaining priority through individual ISP arrangements could be 

 

435 See, e.g., Tim Wu, The Broadband Debate: A User’s Guide, 3 J. ON TELECOMM. & HIGH TECH. L. 69, 

89 (2004) (“The NN rules create a structural bias that favors entry of any player, operator or application, or 

equipment-developer, into the market for consumer usage of the Internet. They are designed to make the 

Vonage story repeat itself.”).

436 See, e.g., Pepper, Tr. I at 88-89; Verizon Communications Inc., Public Comment 60, at 5-6. 

437 See, e.g., Verizon Communications Inc., Public Comment 60, at 27-28; McCormick, Tr. I at 246-47. 

438 See, e.g., G. Sohn, Tr. I at 96-98; Feld, Tr. II at 20-21. The state of competition in the broadband 

Internet access area is discussed in more detail in Chapter VI below. 

439 See, e.g., Posting of Patrick Barnard to VoIP Blog, http://blog.tmcnet.com/blog/rich-tehrani/voip/is-netneutrality-enforceable.html (Mar. 4, 2006) (“[C]onsumers can’t tell whether the packets they are receiving 

have been properly ‘prioritized’ - so, in the absence of these complaints, who will be responsible for 

policing the Internet to make sure network operators aren’t ‘degrading’ signals – even to the slightest of 

degrees?”). But see Pepper, Tr. I at 94 (asserting that large service providers “have the ability to identify” 

problems such as discrimination). 

440 See, e.g., Davidson, Tr. I at 229 (citing Rogers Cable in Canada as degrading network video traffic). 

441 See also supra Chapter IV.B.2 for a discussion of concerns over the potential balkanization of the 

Internet. 

442 Tulipane, Tr. I at 260-63. 
95

prohibitive.443 These costs could function as an effective barrier to entry for such 

providers with products that require priority, and as a barrier to entry for any provider if 

ISPs do not maintain adequate resources for the best-efforts portions of their networks.444 

Finally, preferred priority arrangements could entail exclusions of non-preferred 

content and applications providers. For a provider with an application that requires 

priority treatment, an ISP’s preferred arrangement with a competitor may preclude that 

provider’s ability to reach the ISP’s customers. Again, if the ISP does not maintain 

adequate resources for best-efforts delivery, all providers excluded from priority 

arrangements may effectively be precluded from reaching the ISP’s customers. 

Commentators differ considerably, however, in their projections of the likelihood of such 

results.445 

 c. Innovation at the “Edges” of the Internet

 Some network neutrality proponents argue that innovation by content and 

applications providers at the “edges” of the Internet would suffer with preferential 

source-based prioritization, complicated fees and negotiations to distribute content and 

applications over the fast lane, and inadequate service on the best-efforts lane.446 This 

could translate into a devaluing of the overall network as fewer offerings and participants 

and fewer imaginative new uses could depress the value of broadband Internet service. 

One response is that ISPs and other network operators have an interest in ensuring “that 

there is rapid innovation and vibrant competition for Internet content and applications” 

because consumers are interested not only in greater speeds, “but also new forms of 

content and application[s] that take advantage of such speeds.”447

 

443 Libertelli, Tr. I at 73. 

444 Davidson, Tr. I at 274. 

445 For example, Harold Feld has asserted that last-mile ISPs have an opportunity to engage in 

discriminatory behavior, Feld, Tr. II at 70-72, while Verizon has argued that “providers will have numerous 

alternative means of distributing their products and services to consumers.” Verizon Communications Inc., 

Public Comment 60, at 27. 

446 See, e.g., Libertelli, Tr. I at 73 (“[Skype] support[s] net neutrality, because it embodies a policy of 

decentralized innovation. For [Skype], net neutrality is not a theory, but a concrete example of what is 

possible on the Internet when entry barriers are low.”); id. at 75 (“If government policy becomes too 

focused on the interests of network owners, we put at risk all of the innovation and software development 

that has allowed the Internet to thrive.”); Davidson, Tr. I at 226-27 (“And so, we are very eager to preserve 

the innovation and openness of the Internet that has allowed companies like Google to develop.”); D. Sohn, 

Tr. II at 223-24.

447 Verizon Communications Inc., Public Comment 60, at 6. See also OECD Report, supra note 382, at 17 

(“[S]ome commentators are worried that a multi-tiered structure would introduce a new barrier to entry and 

stifle innovation at the edges. Any increased barriers to entry will reduce the amount of competitive entry 

into the market. It is not clear though how the access to higher-speed delivery would be priced and the 

amount of burden it would place on new firms. On the other hand, the introduction of higher-quality, 

guaranteed connections could also spur innovation for services that require such connectivity.”). 
96

3. Prioritization Based on Particular Content

 A Workshop participant has noted that new technologies can allow network 

operators to determine, at least to some extent, the particular content of a data 

transmission.448 These technologies make possible differentiation at an even more 

specific level than by application or source. The use of such mechanisms could allow 

higher (or lower) priority treatment targeted specifically to content such as streaming 

video for a medical examination or a child’s tutoring.449 The decision to favor or disfavor 

certain content could be done by the ISP, the provider, or the user, and the effects 

described above could apply at this more targeted level.450

D. Conclusion 

Technological developments have enabled network operators, including last-mile 

ISPs, to identify information about the data packets such operators transmit and to 

differentiate the treatment that they provide to these packets, allowing a variety of 

prioritization mechanisms. These developments lead to a wide range of possibilities at all 

levels of the Internet, but there remains substantial disagreement among commentators as 

to both the likelihood and desirability of many of them. 

Prioritization technologies provide potential benefits for ISPs, content and 

applications providers, and consumers. For example, prioritization may improve QoS for 

certain content and applications, reduce overall infrastructure costs, and allocate 

resources to their highest-valued uses. Prioritization may aid innovation in applications 

or content that need higher QoS to operate effectively. It also may enable ISPs to obtain 

income streams from beneficiaries of their networks besides their own customers, either 

generally or on a preferential basis, and could provide a dimension for both content and 

applications providers and ISPs to differentiate their offerings. Prioritization may thus 

improve ISPs’ profitability and enable greater investment and innovation in network 

quality and expansion. Prioritization also could improve certain content and applications 

providers’ sales and profitability, facilitating growth and innovation by such providers. 

Widespread use of prioritization technologies, however, poses potential risks as 

well. It also could create difficulties for newer or competitively weaker providers to 

enter or remain online or to innovate and successfully disseminate their innovations – 

difficulties that are routine with most means of communication, but typically not with the 

Internet. Prioritization could enable not only complete blocking of disfavored content 

and applications, but also intentional or passive degrading of their delivery, which could 

be tantamount to blocking. It could enable exclusive deals for priority that, if combined 

with inadequate delivery of non-priority packets, might eliminate the traditional ability of 

 

448 Peha, supra note 36, at 4-5. 

449 McCormick, Tr. I at 242-44. 

450 See infra Chapter VIII.B.3 for a discussion of privacy and data security concerns raised by certain 

prioritization technologies. 
97

every user to reach every content and applications provider through a single Internet 

access agreement. If an ISP has market power, use of these abilities might enable 

extraction of consumer surplus from Internet access markets as well as related markets. 

Further, whether an ISP is employing these technologies and whether any of these harms 

are occurring as a result may be difficult for consumers to determine. 

Not every use of prioritization technologies is apt to have all of these positive or 

negative results. Policy makers considering whether to allow or restrict any or all usage 

of prioritization technologies should take into account the many and varied implications 

of such usage.
98

VI. THE CURRENT AND FUTURE STATE OF BROADBAND 

COMPETITION 

Broadband Internet service is a relatively new industry characterized by high 

levels of demand growth from consumers, as well as high market shares held by 

incumbent cable and telephone providers and many new entrants trying to take some of 

that market share. As proponents and opponents of network neutrality regulation analyze 

the various competitive forces at work in the industry, they have fundamental differences 

over the current and future competitiveness of the market. As discussed throughout this 

Report, those differences play out not only in the regulatory policies proposed by each 

side, but in the proposed antitrust policies to be pursued to protect consumers. 

In this Chapter, we consider the changing nature of the broadband industry, 

beginning with a brief, historical review of the narrowband, or dial-up, Internet access 

industry in Section A. Section B reviews competition among the various platforms 

through which broadband access is provided and then summarizes the sometimes 

conflicting views on current and future broadband competition in the U.S. Section C 

provides an overview of municipal provision of wireless Internet service, a subject that 

often arises in the discussion of broadband competition. Section D addresses federal 

spectrum policies, a subject that often is raised in the network neutrality debate as a 

potential source of additional broadband competition. Finally, Section E provides some 

international perspective on the broadband experience, identifying the various factors that 

have influenced broadband deployment and adoption rates in a few foreign nations that 

are often cited as having higher such rates than the U.S. 

A. Historical Background: Dial-up Service 

In the early days of commercial Internet services – that is, the late 1980s – 

consumer access to the Internet was provided by narrowband, or dial-up, service. 

Consumers purchased Internet access at speeds of up to 28 (and later 56) Kbps delivered 

through the same local telephone lines that delivered voice services. Because the 

telephone lines were analog, narrowband service required not only dial-up access but a 

modem to translate digital computer data into an analog signal. 

Entry into the provision of Internet services through narrowband was not difficult, 

and the market was characterized by hundreds of small start-up companies. As in many 

new markets, shares of the leading companies fluctuated rapidly. First-mover America 

Online was the largest Internet service provider in the narrowband market, with 

approximately 45 percent of the narrowband market by the third quarter of 2003.451 

MSN and EarthLink were the next two largest, with approximately 10 and 8 percent of 

the market, respectively. Over time, broadband began to supplant narrowband: by the 

fourth quarter of 2003, broadband accounted for 36 percent of the total Internet access 

 

451 Press Release, comScore, comScore Announces Breakthrough National and Local Market ISP 

Benchmarking Report (Nov. 24, 2003), available at

http://www.comscore.com/press/release.asp?press=385. 
99

market, and AOL’s share of U.S. consumer ISP subscriptions had fallen to 28 percent.452 

At the end of 2003, broadband’s share of the Internet access market had reached nearly 

50 percent in many major geographic areas.453 By 2006, almost 75 percent of U.S. 

Internet users logged on using a broadband connection.454

Although narrowband is still the service of choice for some subset of consumers, 

as indicated above, that number is dwindling. This does not mean, however, that the 

narrowband market has become competitively irrelevant. As an acceptable substitute for 

broadband for some consumers, narrowband appears to retain some constraining 

influence on broadband prices, and presumably that influence would grow (or decline 

more slowly) if broadband prices were to rise (or quality to erode).455 In this regard, 

narrowband is like any other supplanted technology whose competitive influence lasts 

long after the early adopters have turned to the newer alternative. Although we are not 

able to quantify the impact of this competitive restraint, we note its continued presence. 

B. Views on the State of Broadband Competition456

Both proponents and opponents of net neutrality agree that broadband 

technologies will continue to supplant narrowband as the means of accessing the Internet. 

Where those groups differ is on the issue of the current and future state of competition in 

the broadband marketplace. One of the fundamental issues dividing the two sides is 

whether broadband suppliers have sufficient market power to engage in anticompetitive 

practices that will not only harm consumers of applications and content, but that will also 

degrade the open nature of the Internet and adversely impact the market dynamics for all 

parties connected to it. 

One crucial issue in this particular debate is to determine which entities are 

effective current and future competitors in the provision of broadband Internet access. 

An initial step is thus to define what we mean by broadband service. The FCC has stated 

that 200 Kbps is “enough capacity to provide the most popular forms of broadband – to 

 

452 Press Release, comScore, Broadband Usage Poised to Eclipse Narrowband in Largest U.S. Markets 

(Mar. 10, 2004), available at http://www.comscore.com/press/release.asp?press=439. 

453 Id.

454 Carol Wilson, Nielsen: Broadband Use Nears 75% in U.S., TELEPHONY ONLINE, June 22, 2006, 

http://telephonyonline.com/broadband/news/Nielsen_broadband_Internet_062206/index.html. 

455 See Wallsten, Tr. II at 47 (“Lots of things actually reduce demand for broadband. One of them is dial[-

]up connections. . . . Most people who have dial[-]up say they have no interest in broadband connections, 

according to the Pew Internet American Trust Foundation in a recent survey they did. Sixty percent have 

no interest in broadband. Obviously, that’s going to change as prices continue to come down and content 

available on[]line increases.”). 

456 As discussed below in this Chapter, a detailed, locality-by-locality analysis of each broadband market in 

the U.S. is beyond the scope of this Report. Instead, this Chapter conveys the views on broadband 

competition generally that various interested parties have expressed. This Chapter also identifies certain 

national trends in the provision of broadband service. 
100

change web pages as fast as one can flip through the pages of a book and to transmit fullmotion video.”457 However true that may have been in 1999, that speed now is widely 

considered too slow.458 No consensus has yet emerged, however, as to the appropriate 

definition of broadband service.459 DSL services typically start at approximately 700 

Kbps, and most emerging technologies, including wireless, are measured in megabits per 

second. 

However it is defined, broadband service is now the appropriate focus of any 

inquiry into the state of competition in the delivery of Internet services. This market has 

quickly evolved from one in which consumers could get broadband only if they had 

access to cable systems offering it, to one in which many, if not most, consumers can get 

broadband from either a cable or telephone provider.460 In 2000, over 80 percent of 

broadband service was provided by cable modem.461 By the middle of 2006, broadband 

service by cable had fallen to 55.2 percent, while DSL’s residential share had increased to 

40.3 percent.462 The balance of the market consisted mostly of mobile wireless, with 

fiber, satellite, fixed wireless, and broadband over powerlines garnering relatively small 

shares. 

By some accounts, the broadband Internet access industry is showing signs of 

robust competition, including fast growth, declining prices for higher-quality service,463

 

457 In re Inquiry Concerning the Dev. of Advance Telecomms. Capability to All Americans in a Reasonable 

& Timely Fashion, & Possible Steps to Accelerate Such Dev. Pursuant to Section 706 of the Telecomms. 

Act of 1996, 14 FCC Rcd 2398, 2406 (1999). 

458 Wallsten, Tr. II at 45; G. Sohn, Tr. I at 97; Ryan, Tr. I at 267; Weiser, Tr. II at 90. 

459 Wallsten, Tr. II at 67 (“I’m pretty sure that if you tried to define it today, a year from now, it would look 

very different.”); Feld, Tr. II at 71 (“[T]he market definition question . . . is murky.”). 

460 This does not necessarily mean that most consumers have access to only two broadband providers. 

According to the FCC, by June 30, 2006, consumers in more than 87% of all U.S. zip codes had access to 3 

or more broadband choices, while 63% of zip codes were served by 5 or more broadband providers. FCC,

HIGH-SPEED SERVICES, supra note 18, at 20 tbl.15. However, the competitive relevance of this data has 

been questioned because the FCC counts a zip code as served by a broadband provider if only one customer 

in the zip code has access to that provider. See Wallsten, Tr. II at 44, 46. Cf. William J. Baumol et al., 

Economists’ Statement on Network Neutrality Policy 1 (AEI-Brookings Joint Center, Working Paper No. 

RP-07-08, 2007), available at http://ssrn.com/abstract=976889 (“Just because a zip code has multiple 

providers does not mean that those providers compete directly, so whether ‘enough’ firms compete yet is 

debatable; the trend, however, is positive. Furthermore, consumers are making greater use of new 

technologies. Mobile wireless use went from fewer than half a million subscribers in 2005 to more than 20 

million subscribers in 2006. In short, more people are getting served by more providers and more 

platforms.”). 

461 Press Release, FCC, FCC Releases Data on High-Speed Services for Internet Access (Oct. 31, 2000), 

available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hspd1000.pdf. 

462 FCC, HIGH-SPEED SERVICES, supra note 18, at 7 tbl.3. 

463 Sidak, Tr. I at 108; Muris, Tr. II at 120. See also Sidak, supra note 287, at 399 (documenting changes in 

speed and price of cable and DSL services during 2000-2006 period). 
101

and the current market-leading technology (i.e., cable modem) losing share to the more 

recently deregulated major alternative (i.e., DSL). Broadband deployment and 

penetration have both increased dramatically since 2000. From June 2000 to June 2006, 

the number of high-speed Internet lines increased from 4.1 million to 64.6 million, with 

52 percent growth from June 2005 to June 2006 alone.464 The FCC estimated that by 

2006, broadband DSL service was available to 79 percent of the households that were 

served by a telephone company, and cable modem service was available to 93 percent of 

the households to which cable companies could provide cable television service.465 

Penetration kept pace with deployment, as by 2006, broadband Internet access accounted 

for over 70 percent of all U.S. Internet access.466

Prices for DSL broadband services have also fallen rapidly as the telephone 

companies have competed aggressively to take market share from the cable companies. 

By one estimate, the average monthly revenue per user of DSL service decreased from 40 

dollars in 2002 to 31 dollars in 2006.467 From May 2005 to April 2006, AT&T reduced 

the monthly price of 3.0 Mbps DSL service from $29.95 to $17.99.468 Quality-adjusted 

cable modem prices too have fallen.469

Proponents of net neutrality regulation, however, posit a duopoly with substantial 

market power residing with the telephone and cable companies in the delivery of Internet 

services to the home.470 According to this scenario, structure is determinative and a 

duopoly inevitably will lead to anticompetitive conduct.471 Alternative services are not 

yet seen as effective substitutes.472 Plans to supply a quality-of-service component to the 

 

464 FCC, HIGH-SPEED SERVICES, supra note 18, at 5 tbl.1. 

465 Id. at 19 tbl.14. 

466 See supra note 454. 

467 BERNSTEIN RESEARCH, BROADBAND UPDATE: “VALUE SHARE” AND “SUBSCRIBER SHARE” HAVE 

DIVERGED 4 (2006). 

468 Id. at 6. 

469 Robert W. Hahn & Robert E. Litan, The Myth of Network Neutrality and What We Should Do About It

10 (AEI-Brookings Joint Center, Working Paper No. RP-06-33, 2006), available at http://www.aeibrookings.org/admin/authorpdfs/page.php?id=1357 (“While the absolute price of a cable modem has not 

declined as rapidly, the quality-adjusted price has declined significantly, as cable modem connection speeds 

have more than doubled while prices held steady.”). 

470 See, e.g., Libertelli, Tr. I at 76; G. Sohn, Tr. I at 96; Feld, Tr. II at 21; Tulipane, Tr. I at 273. 

471 Save the Internet, Frequently Asked Questions, http://www.savetheinternet.com/=faq (last visited June 

15, 2007) (“The cable and telephone companies already dominate 98 percent of the broadband access 

market. And when the network owners start abusing their control of the pipes, there will be nowhere else 

for consumers to turn.”). 

472 Feld, Tr. II at 21 (“[T]here is no evidence of substitutability for other services.”); Putala, Tr. II at 28; G. 

Sohn, Tr. I at 96. 
102

next generation Internet, along with interest in vertically integrating into applications and 

content, are seen as the first and necessary steps to use that market power in an 

anticompetitive fashion. Net neutrality proponents also foresee plans to deny or degrade 

access to certain content or applications by telephone and cable companies. 

Opponents of net neutrality regulation see a different market for access to highspeed Internet services. They believe that high-speed wireless services compete directly 

with DSL and cable modem services already and will do so increasingly as those services 

become ubiquitous.473 Specifically, they note that a substantial number of consumers 

now have access to high-speed service from satellite technologies, as well as other 

wireless technologies, such as Wi-Fi, Wi MAX, and 3G cellular services. Three 

companies have deployed infrastructure to provide satellite broadband service to most of 

the U.S.474 According to the FCC, there were over 400,000 satellite broadband customers 

by the end of 2005.475 Wi-Fi, which uses unlicensed spectrum, provides download 

speeds of up to 20 Mbps in over 40,000 hot spots across the country.476 A number of 

municipalities are exploring the deployment of Wi-Fi networks.477 Wi MAX technology 

is also being deployed, with over 150 pilot projects under way by May 2006.478 Sprint, 

for example, is building a nationwide Wi MAX network and expects to reach 100 million 

customers by 2008.479 3G cellular technology is already deployed, with speeds of up to 3 

 

473 McCormick, Tr. I at 246-47. See also Wireless Internet Service Providers Association, Public Comment 

61, at 1-2 (not taking a position on network neutrality, but estimating that in 2004 there were 3,000-6,000 

wireless ISPs (“WISPs”) servicing more than 1 million customers in the U.S. and maintaining that “though 

many of our membership are smaller in size when compared to the larger wireline [ISPs], WISPs do 

constitute a 3rd Internet pipe in the US market”); CTIA – The Wireless Association, Public Comment 13, at 

9-13 (“Unlike the predictable performance of a mature, oligopoly market, the market for broadband access 

and services is characterized by new entry and ramped-up investment and build-out using new 

technologies.”) (describing ongoing investment of wireless carriers). 

474 See GOV’T ACCOUNTABILITY OFFICE, GAO-06-426, BROADBAND DEPLOYMENT IS EXTENSIVE 

THROUGHOUT THE UNITED STATES, BUT IT IS DIFFICULT TO ASSESS THE EXTENT OF DEPLOYMENT GAPS IN 

RURAL AREAS 15 (2006) [hereinafter GAO BROADBAND DEPLOYMENT]. 

475 FCC, HIGH-SPEED SERVICES, supra note 18, at 5 tbl.1. 

476 JiWire, Wi-Fi Hotspots in the U.S., http://www.jiwire.com/hot-spot-directory-browse-bystate.htm?country_id=1 (last visited June 15, 2007). 

477 See infra Chapter VI.C for a more detailed discussion of municipal provision of wireless Internet access. 

478 GAO BROADBAND DEPLOYMENT, supra note 474, at 60. 

479 Amol Sharma & Don Clark, Sprint to Spend Up to $3 Billion to Build Network Using WiMAX, WALL 

ST. J., Aug. 9, 2006, at B2. See also Sprint Nextel Corp., Public Comment 52, at 7 (“Sprint Nextel’s 

investment in wireless WiMax will provide access of up to 4Mbps.”). 
103

Mbps.480 Additionally, telephone companies are deploying fiber-optic broadband 

networks,481 and BPL technology is already deployed in a handful of local markets.482 

Net neutrality proponents dispute these characterizations of competitive 

alternative technologies. Proponents argue that satellite, wireless, and BPL providers 

face technical problems and other barriers to entry into consumer broadband markets, and 

that their competitive impact should be discounted as a result. They note first the small 

market shares and slower speeds of BPL and fixed and mobile wireless.483 Further, 

satellite service is available only to those consumers that have a clear view to the 

satellite.484 In addition to these technical issues, regulatory policies, such as spectrum 

availability and local franchise requirements, can raise barriers to entry for wireless 

access providers.485 

Some commentators also have identified the area of so-called special access 

services as a potential obstacle to more robust competition in the area of broadband 

Internet access.486 Special access services involve dedicated (typically high-capacity) 

facilities that run directly between the end user and a carrier’s network or between two 

discrete end-user locations.487 With respect to broadband Internet access, such services 

are sold at the retail level to large enterprise customers, particularly those with multiple 

locations, and at the wholesale level to various broadband access providers, including 

 

480 Altschul, Tr. II at 7. 

481 In re Review of the Section 251 Unbundling Obligations of Incumbent Local Exch. Carriers, 18 FCC 

Rcd 16978, 17146 (2003) (triennial review order) (“[C]ompetitive LECs have demonstrated that they can 

self-deploy FTTH loops and are doing so at this time.”). 

482 See N.Y. Eases Limits on Utility Role in BPL Transactions, Says Industry Source, COMM. DAILY, Oct. 

19, 2006, at 3; Press Release, Cal. Pub. Utils. Comm’n, PUC Approves New Broadband Over Power Lines 

Regulatory Framework (Apr. 27, 2006). See also Yinka Adegoke & Robert MacMillan, DirecTV May Try 

Broadband on Power Lines, REUTERS, May 14, 2007, available at

http://www.reuters.com/article/technologyNews/idUSN1433448320070514?feedType=RSS&rpc=22

(discussing DirecTV’s potential testing of delivery of broadband over powerlines within the next year). 

483 See Putala, Tr. II at 29. But see CTIA – The Wireless Association, Public Comment 13, at 20 (“The 

relative speeds of the newer generations of wireless technologies are comparable to the average DSL 

speeds experienced by consumers, and the next generations of wireless technologies promise even faster 

speeds.”). 

484 See Feld, Tr. II at 20. 

485 See, e.g., Feld, Tr. II at 18-20 (identifying, among others, federal spectrum licensing and intellectual 

property barriers to entry); Wallsten, Tr. II at 48-49 (discussing local franchise rules for IPTV). See infra

Chapter VI.D for a more detailed discussion of federal spectrum policies. 

486 See, e.g., Sprint-Nextel Corp., Public Comment 52, at 1-5; BT Americas Inc., Public Comment 5, at 8. 

Special access services also are referred to as dedicated access services or local private line services. 

487 Special Access NPRM, 20 FCC Rcd 1994, 1997 (2005). In contrast to special access services, switched 

access services use local exchange switches to route originating and terminating voice and data traffic. Id.
104

other carriers competing for enterprise customers and wireless network operators that do 

not have their own facilities connecting their transmitters (e.g., cell towers) to their 

switches.488 Some commentators argue that competition in the provision of special 

access services is “de minimis”

489 and that this lack of competition constrains the ability 

of some ISPs, particularly wireless access providers, to compete with the ISPs that also 

own special access facilities.490 After taking certain deregulatory actions in the area of 

special access services in 1999,491 the FCC currently is conducting “a broad examination 

of the regulatory framework to apply to . . . interstate special access services . . . .”492

Because alternative broadband providers are not perfect substitutes for cable or 

DSL broadband providers, the mere counting of providers using new technologies does 

not answer the question of whether or not they are effective competitive alternatives to 

cable and DSL.493 The alternatives must have some ability to discipline incumbents 

attempting to exercise market power before they can be considered part of the market. In 

certain circumstances, however, alternative products or services need not be perfect 

substitutes for all consumers to be considered part of a relevant antitrust market.494 If a 

wireless broadband service appeals to a sufficient number of marginal cable modem or 

DSL broadband consumers to constrain pricing activity by the cable and telephone 

 

488 See id. at 1995-96; Sprint-Nextel Corp., Public Comment 52, at 2; BT Americas Inc., Public Comment 

5, at 8 n.31. 

489 Sprint-Nextel Corp., Public Comment 52, at 2-3 (“The vast majority of buildings and cell sites 

throughout the country have access to only one provider of these essential inputs – either AT&T or 

Verizon.”). 

490 See, e.g., id. at 5. 

491 See In re Access Charge Reform, 14 FCC Rcd 14221 (1999) (fifth report and order and further notice of 

proposed rulemaking), aff’d, WorldCom, Inc. v. FCC, 238 F.3d 449 (D.C. Cir. 2001). Some have criticized 

the FCC’s basis – that is, a sufficient amount of competition for provision of special access services – for 

taking these actions. See, e.g., GOV’T ACCOUNTABILITY OFFICE, GAO-07-80, FCC NEEDS TO IMPROVE ITS 

ABILITY TO MONITOR AND DETERMINE THE EXTENT OF COMPETITION IN DEDICATED ACCESS SERVICES

(2006). 

492 Special Access NPRM, 20 FCC Rcd at 1995. Even with the deregulatory actions taken by the FCC, 

special access services remain subject to Title II of the Communications Act. Sprint Nextel Corp., Public 

Comment 52, at 3 n.7. 

493 Feld, Tr. II at 16 (“[T]he FTC understands that it is not just an issue of counting noses.”); Waz, Tr. II at 

162 (“[M]arket share is only the beginning of the analysis.”). 

494 See FTC & DOJ, COMMENTARY ON THE HORIZONTAL MERGER GUIDELINES 15 (boundaries of a relevant 

antitrust product market may not be clear cut when “substitutes exist along a continuum”). Cf. In re

Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC Rcd 14853, 

14885 (2005) (report and order and notice of proposed rulemaking) (“We recognize that the attributes of 

the available broadband platforms vary, particularly as to price, speed, and ubiquity. We expect that 

customers will weigh these attributes for each platform and make service-related decisions based on their 

specific needs. For example, a customer may select a broadband Internet access service with a somewhat 

slower speed than that associated with other service platforms in return for the lower price of the selected 

service.”). 
105

companies, then it may be considered a competitive alternative and counted as part of the 

relevant market. 

Even products or services not currently being sold to consumers may constrain 

anticompetitive conduct by incumbent firms. The Horizontal Merger Guidelines jointly 

issued by the FTC and the Department of Justice Antitrust Division provide extensive 

guidance on establishing relevant antitrust markets generally and on the inclusion of 

potential entrants in a relevant market in particular.495 These Guidelines consider 

potential entrants, under certain circumstances, to be capable of affecting current business 

decisions of incumbent firms.496

* * * 

The broadband marketplace is in considerable flux.497 The competitive impact of 

all of the alternative broadband technologies on the incumbent telephone and cable 

companies, therefore, is not totally clear. Nonetheless, there are national trends that 

appear to show an increasing number of competitive alternatives across all markets. Of 

course, effective national competition for broadband customers does not mean that all 

consumers enjoy competitive local markets. Relevant antitrust markets in the broadband 

industry may be highly localized, as cable franchise laws, population density, income 

dispersion, and other factors may limit some consumers’ current choices of broadband 

providers. However, without identification and analysis of each local market – which is 

well beyond the scope of this Report – we cannot determine which consumers currently 

benefit from competitive broadband markets. 

 

495 See DOJ & FTC, HORIZONTAL MERGER GUIDELINES § 3.2 (1997). 

496 Id. (“The Agency generally will consider timely only those committed entry alternatives that can be 

achieved within two years from initial planning to significant market impact.”). See also Yoo, Tr. II at 257 

(“[I]n a world where Sprint is making a multi-billion dollar commitment to come in by the end of 2008, 

that’s a reasonable time frame to have.”). 

497 As the FCC has noted in its broadband rulemaking proceedings: 

As the Internet and related applications mature and continue to evolve, the 

demand for broadband Internet access services will likely grow. The presence of more 

content available through the Internet and the enhanced means of presenting the content, 

together with growth in broadband-related applications, such as streaming video, will 

lead more subscribers to seek broadband Internet access service. As the number of 

subscribers grows, so does the opportunity for alternative technologies and their 

respective providers. As any provider increases its market share or upgrades its 

broadband Internet access service, other providers are likely to mount competitive 

challenges, which likely will lead to wider deployment of broadband Internet access 

service, more choices, and better terms. 

In re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC Rcd 

14853, 14885 (2005) (report and order and notice of proposed rulemaking). 
106

C. Municipal Provision of Wireless Internet Access 

In recent years, hundreds of municipalities throughout the United States have 

considered whether they should provide broadband Internet access to their residents and, 

if so, how.498 Some municipalities have installed costly fiber-optic or cable wiring. 

More recently, with the development of wireless Internet technologies that are less 

expensive to deploy, such as Wi-Fi and Wi MAX, municipalities also have explored and, 

in some cases played a role in the development of, municipal wireless broadband 

networks. These municipalities have done so either in conjunction with an outside entity, 

such as a private ISP, or in their own capacity as a municipal provider of wireless Internet 

service. Municipalities and other entities that have implemented such networks have 

most commonly used one of six general operating models: non-profit, cooperative, 

contracting out, public-private partnership, municipal, and government loan-grant. A 

variety of hybrids may be created by combining various features of each model.499

FTC staff issued a report in October 2006 on the Municipal Provision of Wireless 

Internet.

500 The report concluded that the arguments for and against municipal 

involvement in wireless Internet service may vary depending on a municipality’s 

particular factual circumstances. Accordingly, rather than attempt to provide a single 

answer to the question of whether, and to what extent, a municipality should involve 

itself in the provision of wireless Internet services, the report provides an analytical 

framework for policy makers considering such a decision.501

Some commentators suggest that, whatever the particular operating model, 

municipal-based wireless networks may be a significant issue in the broadband Internet 

connectivity debate.502 In particular, some suggest that municipal networks may add an 

additional competitive point of delivery to other existing wireline and emerging wireless 

technologies like third generation and fourth generation mobile broadband and satellite. 

Some network neutrality opponents, therefore, argue that the proliferation of municipallevel wireless networks demonstrates not only that broadband competition is sufficiently 

robust, but that it is increasingly intense and obviates the need for a new ex ante

regulatory regime. In particular, they point out that some network neutrality proponents, 

like Google and EarthLink, are themselves working to deploy large-scale municipal 

 

498 See generally Posting of Esme Vos to MuniWireless, 

http://www.muniwireless.com/article/articleview/5495 (Apr. 5, 2007, 03:14). 

499 See generally FTC STAFF, MUNICIPAL PROVISION OF WIRELESS INTERNET (2006), available at 

http://www.ftc.gov/os/2006/10/V060021municipalprovwirelessinternet.pdf.

500 Id.

501 Id. at 41-49. 

502 See, e.g., Lehr, Tr. I at 43. According to Lehr, “alternative access connections, and municipal 

networking where communities get together, maybe with the help of their local government . . . or local 

utility . . . get together and provision a network. And if that network is an open access network, then that 

provides another way to deal with this.” Id. 
107

networks in competition with other technologies.503 At lease one network neutrality 

proponent also has suggested that the introduction of these additional delivery points may 

alleviate many of the “last mile” concerns raised in the broadband connectivity debate.504

Others argue, however, that municipal networks are not necessarily a panacea and 

could themselves raise important connectivity issues.505 Some observers view the 

concerns raised by network neutrality proponents as a potential stumbling block to the 

deployment of municipal-level networks because municipalities, in many cases, may 

need to rely on private network operators for their technical expertise and financial 

backing.506 Some municipal network operators, however, indicate that they intend to 

resell non-discriminatory, wholesale access to other non-facilities-based Internet service 

providers in order to alleviate these concerns.507 Some private companies also are 

attempting to create municipal-scale networks by distributing wireless Internet routers to 

consumers without charge and then deriving revenues from advertising-supported 

services or fees from users who are not router owners. Essentially, this business model 

seeks to create a wide-area network of overlapping, privately operated wireless Internet 

hotspots.508

In addition, although the potential speeds of new wireless Internet technologies 

are comparable to those of DSL, cable, and fiber wirelines, a wireless network’s actual 

 

503 Sidak, for example, argues that Google’s involvement in municipal networks “has just removed one of 

the two principal arguments that have been made in favor by [Google] for network neutrality regulation – 

the supposed absence of competition in the broadband access market.” Sidak, Tr. I at 109. See also

Thorne, Tr. II at 36-38 (citing Google and EarthLink’s involvement municipal wireless networks). 

504 Lawrence Lessig, a network neutrality proponent, argues that “[t]here’s an explosion in municipal mesh 

networks . . . . [If] people unify them, the last mile is solved. The last mile is provided free of proprietary 

control.” Gavin Clark, Municipal WiFi is the New Hope for Net Neutrality – Thinker, THE REGISTER, Aug. 

16, 2006, available at http://www.theregister.com/2006/08/16/wifi_net_neutrality_lessig. 

505 See, e.g., Lehr, Tr. I at 43 (“And so, in principle, that will help, because more choices [are] better. But 

it’s possible that the municipal network, if it’s not an open access network, could also be guilty of nonneutral treatment. There is no reason to presume that your municipal carrier, if it has market power, may 

be any better behaved than an investor-owned carrier.”). See also Rosston, Tr. I at 210-11 (warning that 

cities may favor one wireless network and attempt to exclude others). 

506 Visiongain concludes that the “network neutrality [debate] is not a fuel for the municipal broadband 

movement in the U.S. . . . It’s a . . . stumbling block.” Ed Gubbins, Neutrality and Municipalities, 

TELEPHONY, Feb. 20, 2006, at 24, available at

http://telephonyonline.com/mag/telecom_neutrality_municipalities (according to analyst Pam Baker, 

municipalities “need technology companies’ expertise, experience, and money . . . . But they cannot afford 

to give those companies total, or even majority, control . . . . Yet cities repeatedly fail when they attempt to 

provide [networks] themselves.”). 

507 Putala, Tr. II at 60 (“[EarthLink is] committed to offering as many local ISPs, to AOL, to anyone else 

who wants to sell capacity on our Wi-Fi networks, the ability to get the same non-discriminatory, very 

reasonable wholesale pricing, so they can make an offering.”). 

508 See FON, What’s FON?, http://www.fon.com/en/info/whatsFon (last visited June 18, 2007); Meraki, 

Our Story, http://meraki.net/about (last visited June 18, 2007). 
108

performance may vary depending on its particular architecture, the number of users, its 

proximity to a high-speed backbone, and other factors like local geography or 

interference from other devices.509 While current wireless technologies in many cases 

may be close substitutes for existing wireline technologies when used to access content 

and applications having light or moderate bandwidth requirements, they generally do not 

provide enough bandwidth to support certain applications, such as real-time video 

transmissions.510

Thus, given these varying factors, some observers view the competitive 

implications of municipal wireless networks as being highly fact-specific, much like the 

decision whether, and to what extent, a municipality should participate in providing such 

services in the first instance.511 Further, some commentators suggest that an ex ante

network neutrality regime might subject a wireless network to differential, negative 

effects beyond those that might befall a more traditional wireline network, due to the 

differing technical constraints of wireless technologies.512 

 

509 See, e.g., Peha, Tr. I at 60. See also FTC STAFF, supra note 499, at 6-12, app. 

510 See, e.g., Putala, Tr. II at 30 (“For EarthLink, this means as we go to compete with Comcast and 

Verizon in Philadelphia, we are going to try to offer both our municipal Wi-Fi broadband service with 

speeds of about a meg [one megabit] up and down, as well as our eight megabits ADSL two plus or wicked 

fast broadband service that requires us to have access to Verizon’s unbundled loops.”). 

511 See, e.g., Lehr, Tr. I at 53-54. According to Lehr: 

 With respect to municipal entry, a lot of folks, you know, make the false 

conclusion that when local governments, or local communities build infrastructure, or get 

involved in the infrastructure provisioning question, that that’s a – you know, that’s a sort 

of binary good/bad thing, and they do it one way or they don’t do it. 

 The answer is, it’s a very complex mix of strategies they face. The particular 

technologies and strategies they undertake, how they do that, is a very complicated thing, 

and has big implications for what sorts of net neutrality problems may happen. 

For example, if they do . . . a fiber deployment that’s an open access platform, 

then that really does go a long way towards eliminating concerns, most of the net 

neutrality concerns. But such an infrastructure plan is unlikely to make sense in most 

communities. And other alternative sorts of strategies, if they make sense at all, need to 

be evaluated in this. 

Id. 

512 See, e.g., Altschul, Tr. II at 51-52 (stating that network neutrality regulations “would have unique effects 

and they would be negative effects” for wireless Internet networks); Sidak, Tr. I at 104-05 (stating that, 

“[o]bviously, there are very different network architecture considerations for wireless networks than for 

wireline networks” and warning against applying network neutrality rules without further evidence of 

harmful practices). See also Lehr, Tr. I at 56-57. Lehr explains that, generally, “spectrum is perceived to 

be a very scarce resource, RF spectrum. So that, generically, your bandwidth is more of something – a 

resource you're going to be more concerned with in the wireless world . . . . [S]o the need to, for example, 

carefully manage traffic on a wireless network is greater.” Id. See also id. at 61-64 (comparing wireless, 

DSL, cable modem, and fiber technologies). 
109

D. Federal Spectrum Policies513

Electromagnetic spectrum is a finite natural resource. The artificial scarcity of 

spectrum that results from government use restrictions further reduces the supply of 

wireless services available to consumers, including broadband Internet access. Thus, 

some commentators suggest that the federal government’s electromagnetic spectrum 

policies constitute a key component of the broadband connectivity debate.514 Wireless 

Internet technologies have become increasingly important alternatives to wireline (i.e., 

DSL and cable modem) services,515 and they may have important implications for the 

broader marketplace for Internet services by increasing competition among Internet 

access providers.516 Some commentators suggest that making additional spectrum 

available to the private marketplace to enhance the competitiveness of wireless Internet 

services may be the best way to address concerns raised by network neutrality 

proponents.517

 

513 A comprehensive analysis of federal spectrum policies is beyond the scope of this Report. This Section 

merely provides a brief overview of the subject to inform the discussion of the role of spectrum policy in 

the broadband connectivity debate. 

514 See, e.g., Lehr, Tr. I at 54 (“[A] lot of the sorts of alternatives that we talk about really depend a lot on 

wireless, and new sorts of wireless technologies. . . . [S]pectrum reform is, obviously, a key element in 

that.”); Mercatus Center at George Mason University, Public Comment 4, at 20-21, 27-31. 

515 The FCC’s Wireless Broadband Access Task Force, for example, concluded that “[b]roadband wireless 

service has the potential to compete with wireline technologies in urban and suburban markets as a primary 

pipe to the home and business, to complement wireline technologies by adding a component of mobility or 

portability, and to lead the way in rural markets where other broadband technologies are less feasible.” 

FCC WIRELESS BROADBAND ACCESS TASK FORCE, CONNECTED & ON THE GO: BROADBAND GOES 

WIRELESS 46 (2005), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-257247A1.pdf. 

According to the FCC’s most recent survey, during the June 2005-06 period, high-speed lines 

(over 200 Kbps in at least one direction) increased from 376,837 to 495,365 for satellite; from 208,695 to 

360,976 for fixed wireless; and from 379,536 to 11,015,968 for mobile wireless. Advanced service lines 

(over 200 Kbps in both directions) increased from 10,966 to 27,489 for satellite; from 191,229 to 333,072 

for fixed wireless; and from 21,079 to 1,913,904 for mobile wireless. FCC, HIGH-SPEED SERVICES, supra

note 18, at 5 tbl.1, 6 tbl.2. 

516 See, e.g., Lehr, Tr. I at 67-68. Lehr suggests that making “more spectrum available down there [below 

one gigahertz] for commercial communication services, would open up new options to help alleviate last 

mile facilities competition concerns.” Id. In his view, “the question about what we do with that 700 

megahertz spectrum, I think, is an important aspect of this whole net neutrality debate.” Id. See also

Baumol et al., supra note 460, at 3 (“Congress and federal regulators should promote policies that increase 

the opportunities for competition and foster Internet innovation. One such policy would be spectrum 

liberalization. . . . The [FCC] should make additional licensed spectrum available for flexible use as soon 

as possible and allow it to be traded so that spectrum can be allocated to its highest-valued uses.”). 

517 See, e.g., Rosston, Tr. I at 164. According to Rosston, “the key is making sure, for example, when we 

get more spectrum out, that we actually enforce the anti-trust laws and make sure that we have the ability to 

have multiple competitors providing broadband access to the home.” Id. Thus, in his view, “that is going 

to help alleviate these concerns. In my mind, this is a much better way than trying to mandate network 

neutrality.” Id. 
110

The federal government affects the availability and price518 of wireless Internet 

services by determining how much spectrum is available to private companies that 

provide such services to consumers. The Communications Act gave the FCC a broad 

grant of power to regulate spectrum in the public interest.519 The FCC has authority over 

spectrum usage by commercial entities and local and state governments. The Department 

of Commerce, through the creation of the National Telecommunications and Information 

Administration (“NTIA”) in 1978, also plays an important role in advising the President 

and managing the federal government’s use of spectrum.520 Other federal agencies also 

assist in the development and implementation of federal spectrum policy.521

The FCC and NTIA manage spectrum by dividing, or allocating, the entire 

spectrum into blocks, or bands, of frequencies established for a particular type of service. 

These allocated blocks can then be further subdivided, or allotted, into bands designated 

for a particular service. For example, an allocation of spectrum for land mobile service 

can be further divided into allotments for business, public safety, and cellular uses. In the 

final subdivision of spectrum, particular parties receive an assignment, or license, to 

operate a transmitter on a specific channel or group of channels in a particular geographic 

area under specific conditions.522

In the past, the FCC relied on comparative hearings or lotteries to award 

licenses.523 Over time, this approach garnered significant criticism.524 In the early 1990s, 

 

518 Making more spectrum available to the private marketplace generally will be expected to lower its price 

and, thereby, reduce the price of associated services for consumers. See In re Principles for Reallocation of 

Spectrum to Encourage the Dev. of Telecomms. Techs. for the New Millennium, 14 FCC Rcd 19868, 

19872-73 (1999) (policy statement) [hereinafter 1999 Policy Statement]. Recent studies estimate that the 

costs of current restrictions on spectrum use run into the billions of dollars, annually. See Jerry Ellig, Costs 

and Consequences of Federal Telecommunications Regulation, 58 FED. COMM. L.J. 37, 80 (2006) 

(estimating the annual costs of current spectrum policy at $77 billion or more, annually). 

519 47 U.S.C. §§ 151 et seq.

520 See NTIA, About the NTIA, http://www.ntia.doc.gov/ntiahome/aboutntia/aboutntia.htm (last visited 

June 18, 2007). 

521 See, e.g., Memorandum on Spectrum Policy for the 21st Century, 39 PUB. PAPERS 605 (June 5, 2003) 

[hereinafter Memorandum on Spectrum Policy] (establishing a Federal Government Spectrum Task Force 

to improve government spectrum use). 

522 FCC, CONNECTING THE GLOBE: A REGULATOR’S GUIDE TO BUILDING A GLOBAL INFORMATION 

COMMUNITY VII-1 to -10 (1999), available at http://www.fcc.gov/connectglobe/regguide.pdf. 

523 See generally FCC SPECTRUM POLICY TASK FORCE, ET DOCKET NO. 02-135, REPORT (2002) 

[hereinafter FCC SPECTRUM POLICY TASK FORCE REPORT], available at

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-228542A1.pdf. 

524 See generally Ronald Coase, The Federal Communications Commission, 2 J.L. & ECON. 1 (1959) 

(questioning the command-and-control method and suggesting a market-based approach). See also Ewan 

Kwerel & John Williams, A Proposal for a Rapid Transition to Market Allocation of Spectrum 1 (FCC 

Office of Plans and Policy, Working Paper No. 38, 2002), available at

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-228552A1.pdf (“Billions of dollars of cumulative 

loss to the U.S. economy have been attributed to inefficient spectrum allocations . . . .”). 
111

the FCC and NTIA began reviewing their spectrum management policies.525 In 1993, 

Congress amended Title III of the Communications Act to authorize the FCC to assign 

licenses through a competitive bidding process, with the goal of matching spectrum to its 

highest-valued use.526 The FCC began conducting auctions the next year.527 In 1997, 

Congress granted the FCC express authority to allocate electromagnetic spectrum for 

flexible use.528 A 1999 FCC Policy Statement outlined principles for future spectrum 

management to: allow for flexible spectrum use to better respond to marketplace 

demands; promote new spectrum-efficient technologies; develop secondary markets to 

improve spectrum utilization; and develop new ways to make more spectrum available.529

In 2002, the FCC Spectrum Policy Task Force completed the first comprehensive 

review of the FCC’s spectrum policies. Its report concluded that, although the agency 

had improved its methods of spectrum allocation, FCC policy was still “not keeping pace 

with the relentless spectrum demands of the market.”530 Expanding on the 1999 Policy 

Statement’s principles, the Task Force report concluded that the FCC should pursue a 

“balanced spectrum policy,” based primarily on exclusive rights allocated via marketbased mechanisms, a supplemental open-access spectrum commons, and the limited use 

of command-and-control regulations for certain purposes, such as public safety and 

national security. Thus, subject to certain exceptions, legacy command-and-control 

spectrum should be transitioned to the exclusive use and commons models “to the 

greatest extent possible.”531

Congress, the FCC, and the NTIA have continued to make additional spectrum 

available to the private marketplace and have provided additional regulatory flexibility 

designed to foster innovation, efficient usage, and the development of secondary markets 

for trading spectrum rights.532 Both the executive branch and Congress continue to 

investigate ways to improve spectrum use.533 

 

525 See, e.g., NTIA, U.S. SPECTRUM MANAGEMENT POLICY: AGENDA FOR THE FUTURE (1991), available at

http://www.ntia.doc.gov/osmhome/91specagen/1991.html. 

526 47 U.S.C. § 309(j). 

527 FCC, About Auctions, http://wireless.fcc.gov/auctions/default.htm?job=about_auctions (last visited June 

18, 2007). 

528 47 U.S.C. § 303(y). 

529 See 1999 Policy Statement, 14 FCC Rcd 19868 (1999). See also In re Principles for Promoting Efficient 

Use of Spectrum by Encouraging the Dev. of Secondary Mkts., 15 FCC Rcd 24178 (2000) (policy 

statement). 

530 FCC SPECTRUM POLICY TASK FORCE REPORT, supra note 523, at 1. 

531 Id. at 3, 6. 

532 See generally id. at 46-55; OFFICE OF MGMT. & BUDGET, EXECUTIVE OFFICE OF THE PRESIDENT,

COMMERCIAL SPECTRUM ENHANCEMENT ACT: REPORT TO CONGRESS ON AGENCY PLANS FOR SPECTRUM 
112

Some commentators have suggested, however, that comprehensive, market-based 

reform is still needed to maximize the efficient use of U.S. spectrum. Generally, these 

commentators propose replacing the current licensing regime with a more robust property 

rights system that allows for maximum transferability and flexibility of use, subject to 

technical considerations.534 Some observers also suggest that innovative technologies 

may allow primary spectrum rights-holders to share their spectrum with non-interfering 

secondary users in new ways.535 Overall, these commentators suggest that 

comprehensive reform, combined with emerging wireless technologies, could lead to 

significant improvements in spectral efficiency, competition, and consumer welfare. 

 Federal spectrum policy has been cited by both proponents and opponents of 

network neutrality as an important component of the ongoing debate. Both sides agree 

that improved spectrum use could potentially increase competition in the marketplace for 

broadband services generally.536 Many network neutrality proponents, however, express 

skepticism that wireless broadband services can, in fact, be a sufficiently close substitute 

to wireline services to check any potential abuses by wireline broadband providers.537

 RELOCATION FUNDS (2007), available at

http://www.ntia.doc.gov/reports/2007/OMBSpectrumRelocationCongressionalNotification_final.pdf. 

533 See Memorandum on Spectrum Policy, supra note 521; U.S. DEP’T OF COMMERCE, SPECTRUM POLICY 

FOR THE 21ST CENTURY – THE PRESIDENT’S SPECTRUM POLICY INITIATIVE: REPORT 1 (2004), available at 

http://www.ntia.doc.gov/reports/specpolini/presspecpolini_report1_06242004.htm; U.S. DEP’T OF 

COMMERCE, SPECTRUM POLICY FOR THE 21ST CENTURY – THE PRESIDENT’S SPECTRUM POLICY INITIATIVE:

REPORT 2 (2004), available at 

http://www.ntia.doc.gov/reports/specpolini/presspecpolini_report2_06242004.htm; Memorandum on 

Improving Spectrum Management for the 21st Century, 40 WEEKLY COMP. PRES. DOC. 2875 (Nov. 30, 

2004) (directing executive branch agencies to implement the Spectrum Task Force reports’ 

recommendations). See also FCC, STRATEGIC PLAN 2006-2011, at 10-12 (2006) (outlining future 

objectives for the efficient and effective use of spectrum), available at

http://www.fcc.gov/omd/strategicplan. 

534 See, e.g., Ellig, supra note 518, at 81-85. See also generally Reed E. Hundt & Gregory L. Rosston, 

Communications Policy for 2006 and Beyond, 58 FED. COMM. L.J. 1 (2006); Jon M. Peha, Emerging 

Technology and Spectrum Policy Reform, International ITU Workshop on Market Mechanisms for 

Spectrum Management (Jan. 2007), available at

http://www.itu.int/osg/spu/stn/spectrum/speakers_pres.html. 

535 See, e.g., Peha, Tr. I at 61 (“There may also be some opportunities to share spectrum more than we have 

in the past, at frequencies that allow you to cover large areas and rural areas.”). See also Peha, supra note 

36, at 1-2, 7-9. 

536 See, e.g., Lehr, Tr. I at 54 (“[M]aking sure that we have a really vigorous commercial market for new 

wireless technologies, I think, is critical to addressing this problem. . . . [S]pectrum reform is, obviously, a 

key element in that.”). 

537 See, e.g., Putala, Tr. II at 29 (“The much heralded independent alternatives are still tiny.”). 
113

E. International Comparisons 

The reasons for differing rates of broadband deployment and customer adoption 

across countries are the subject of considerable debate.538 Certain factors appear to have 

influenced these rates in some countries. These include: government subsidization of 

Internet infrastructure or computer use; local loop539 unbundling requirements; 

population density and demographics; and consumer demand. This Section provides an 

overview of the broadband experiences of South Korea, Japan, and the Netherlands, 

which are often cited as having more extensive broadband deployment and adoption than 

the U.S.540

1. South Korea 

South Korea is frequently described as the most “wired” country in the world in 

terms of Internet service. Although it had less than one Internet user per 100 inhabitants 

in 1995, by 2002 it was one of the world’s largest Internet markets, with 26 million users, 

and, by 2003, 78 percent of South Korean Internet users logged on via a broadband 

connection.541 Several factors have been cited for this explosive growth. 

The South Korean government privatized the historical monopoly 

telecommunications operator, Korea Telecom (“KT”), in the early 1990s and has 

extensively involved itself in the telecommunications sector to upgrade the country’s 

information technology infrastructure and to promote computer use by businesses and 

individuals.542 Initiated in 1995, the Korea Information Infrastructure project has 

emphasized public-private partnerships in funding a national, high-speed public 

 

538 See generally FCC OFFICE OF STRATEGIC PLANNING & POLICY ANALYSIS & INT’L BUREAU,

BROADBAND INTERNET ACCESS IN OECD COUNTRIES: A COMPARATIVE ANALYSIS (2003) [hereinafter FCC

OECD ANALYSIS], available at http://www.coe.montana.edu/ee/rwolff/ee543%20papers/fccbroadband.pdf. This report cautions that “[t]here is no simple way to compare the variety of broadband 

service packages available in different countries.” Id. at 6. See also DANIEL K. CORREA, ASSESSING 

BROADBAND IN AMERICA: OECD AND ITIF BROADBAND RANKINGS (2007), available at

http://www.itif.org/files/BroadbandRankings.pdf (examining various measurements of broadband 

deployment and adoption rates). 

539 For purposes of this Section, the term “local loop” is used to mean the last mile of Internet access. 

540 See, e.g., Schmidt, Tr. II at 55 (reading the following question from a Workshop audience member: 

“Why can’t consumers get cheap, super high[-]speed broadband from Verizon, EarthLink or other 

companies like Japanese consumers can?”). According to the OECD, as of December 2006, the number of 

broadband subscribers per 100 inhabitants in the United States was 19.6, while the corresponding numbers 

were 29.1 in South Korea, 20.2 in Japan, and 31.8 in The Netherlands. OECD, OECD BROADBAND 

STATISTICS TO DECEMBER 2006 (2006), available at

http://www.oecd.org/document/7/0,3343,en_2649_34223_38446855_1_1_1_1,00.html. 

541 INT’L TELECOMMS. UNION, BROADBAND KOREA: INTERNET CASE STUDY 1, 10 (2003) [hereinafter ITU

KOREA STUDY], available at http://www.itu.int/ITU-D/ict/cs/korea/material/CS_KOR.pdf. 

542 Id. at 5, 33-34. 
114

backbone, information technology pilot projects, and technology investment funds.543 

The South Korean government also implemented local loop unbundling requirements in 

2002.544

 This environment seems to have spurred the emergence of multiple ISPs.545 

Some commentators note, however, that many of the ISPs that emerged during the last 

decade have experienced periods of unprofitability and suggest that market consolidation 

is already underway.546 Also, in 2004, the South Korean government subjected KT to 

stricter service and pricing regulations on the grounds that KT’s dominance was a barrier 

to competition in the broadband market.547

 Another important factor in South Korea’s broadband deployment appears to be 

the country’s high average population density of 1,265 people per square mile with 82 

percent of its 48 million people living in urban areas.548 Apartments account for 

approximately 48 percent of South Korea’s housing stock549 and provide housing for 

 

543 It is estimated that the South Korean government spent approximately $24 billion on backbone 

infrastructure during the 1995-2002 period and will spend over $53 billion on information technology 

projects during the 2003-2008 period. Id. The actual amount of past and projected investment may be 

higher, and is difficult to discern, as the government also has directed substantial amounts of private 

investment. Some estimates run into the tens of billions of dollars. See, e.g., James B. Speta, Commentary:

Policy Levers and Demand Drivers in Korean Broadband Penetration, J. KOREAN L., 2004-2005, at 1, 7. 

544 Id. at 8. Some commentators suggest, however, that the major advances in broadband deployment had 

already happened by 2002 and were mainly the result of facilities-based competition in a generally deregulatory environment. See, e.g., Thomas W. Hazlett, Broadband Miracle, WALL ST. J., Aug. 26, 2004, at 

A12. 

545 Heejin Lee & Bob O’Keefe, The Growth of Broadband Internet Connections in South Korea: 

Contributing Factors, 14th Bled Electronic Commerce Conference 438 (2001), available at 

http://domino.fov.uni-mb.si/proceedings.nsf/0/fa0fcb8fecb778fbc1256e9f0030a71f/$FILE/27_Lee.pdf. 

546 One survey reports: “Except for KT and one of the mobile operators, none of Korea’s facilities-based 

telecommunications providers made a profit in 2001.” ITU KOREA STUDY, supra note 541, at 7. KT 

competitor “Thrunet reorganized under bankruptcy laws in 2003, and Hanaro reported its first profits only 

in mid-2004.” Hazlett, supra note 544. See also Kim Tae-gyu, Hanaro Exposed to Greater M&A Risk, 

Korea Times, Mar. 19, 2007. 

547 See Kenji Kushida & Seung-Youn OH, Understanding South Korea and Japan’s Spectacular 

Broadband Development: Strategic Liberalization of the Telecommunications Sectors 22-23 (Berkeley 

Roundtable on the Int’l Econ., Working Paper No. 175, 2006), available at

http://brie.berkeley.edu/publications/wp175.pdf. 

548 POPULATION REFERENCE BUREAU, SOUTH KOREA (2006), available at

http://www.prb.org/DataFind/datafinder7.htm. The U.S., by comparison, has an average population density 

of 80 people per square mile and 79% of its population lives in urban areas. POPULATION REFERENCE 

BUREAU, UNITED STATES (2006), available at http://www.prb.org/DataFind/datafinder7.htm. Nearly half 

of South Koreans live in urban areas with more than one million people, compared to 37% of Americans. 

Speta, supra note 543, at 15. 

549 In the U.S., 27% of households live in apartment buildings. INT’L TELECOMMS. UNION, PROMOTING 

BROADBAND: THE CASE OF JAPAN 34 (2003) [hereinafter ITU JAPAN STUDY], available at

http://www.itu.int/osg/spu/ni/promotebroadband/casestudies/japan.pdf. 
115

approximately 40 percent of its population. The average distance of a customer to a 

telephone exchange is about two kilometers, with 95 percent of customers living within 

four kilometers of an exchange, the target range of asymmetric DSL. This close 

proximity simplifies the last-mile roll-out of such networks.550 

In addition, some observers conclude that the Internet has become much more of a 

cultural phenomenon in South Korea than in some other countries.551 For example, 

although South Koreans’ per-capita income is less than a third of that of Americans, they 

are willing to spend twice as much of their household income on broadband services.552 

2. Japan 

Japan is frequently cited as having some of the lowest prices and highest speeds in 

the world for Internet service. The Japanese government began a partial privatization of 

its historical telecommunications monopoly, Nippon Telegraph & Telephone Corp. 

(“NTT”) in the mid-1980s. Some observers have characterized Japan’s communications 

sector since this time as shifting away from government-managed competition and 

toward a more dynamic, market-oriented system.553 Japanese industrial policy since the 

early 1990s, however, has continued to promote the deployment of fiber-optic 

infrastructure through the use of subsidies and loans from the Development Bank of 

Japan (“DBJ”),554 as well as extensive direct investment by NTT.555

 

550 ITU KOREA STUDY, supra note 541, at 12. “This high population density simplifies network 

development and lowers costs investment [sic].” Id. at 67. 

551 Id. at 12 (“[T]hough more difficult to measure, it is widely agreed that Korean ‘mentality’ is also a key 

factor. Many Korean Internet users first got a taste of high-speed access at Internet cafes . . . and 

subsequently wanted the same rapidity at home. There is also a ‘copy-cat’ syndrome; once one person gets 

something everyone else wants it, too.”). But see Associated Press, Nearly 50 Percent of Americans Have 

Little Use for Internet and Cell Phones, Survey Finds, FOXNEWS.COM, May 7, 2007, 

http://www.foxnews.com/story/0,2933,270392,00.html (summarizing findings of the Pew Internet and 

American Life Project study). 

552 Speta, supra note 543, at 6, 10. As of 2003, Japanese spent 0.02% of their household income on 

broadband services, Americans spent 0.04%, and Swedes and Koreans spent 0.08%. FCC OECD

ANALYSIS, supra note 538, at 7. 

553 In this view, Japanese broadband markets “grew out of a transition in its regulatory regime away from 

‘managed competition.’” Kushida & OH, supra note 547, at 23. That is, “[t]he shift entailed the 

government giving up many of the policy tools to manage competition, but adding new institutions and 

regulations in a transition from ex ante regulation through licenses and approval, towards an ex post mode 

of regulation relying on a dispute resolution commission and other institutions.” Id. 

554 The DBJ has offered providers low or no-interest loans for broadband access lines. The 

Telecommunications Advancement Organization of Japan (“TAO”) has subsidized up to 2% interest on 

DBJ loans. In addition, the government has offered corporate tax rate reductions for operators’ broadband 

equipment and a reduction on the fixed asset tax for broadband equipment. The TAO also has a program to 

guarantee debt liabilities of operators introducing broadband access networks. ITU JAPAN STUDY, supra

note 549, at 33-34. 

555 Kushida & OH, supra note 547, at 29. 
116

Non-facilities-based startup firms began to offer DSL service in the late 1990s, 

relying primarily on access to NTT’s existing infrastructure. Interconnection regulations 

at that time, however, did not cover these access arrangements. The new ISPs, therefore, 

were operating largely at the discretion of NTT, and, in 2000, the Japanese Fair Trading 

Commission warned NTT over its treatment of new DSL providers.556 At the same time, 

the Ministry of Internal Affairs and Communications (“MIC”) required NTT to clarify 

the terms and fees it offered competitors for access to its network, lease out its unused 

fiber-optic infrastructure at low prices, and unbundle its metallic and fiber-optic local 

loops.557 The Japanese government has continued to review policies relating to 

competitors’ access to NTT’s network and also entertained a possible breakup of the 

company.558 By 2001, the new entrant DSL providers began to make significant 

headway.559 

In addition to other government industrial policy measures, Japan’s regional 

electric power utilities had invested substantially in laying fiber-optic networks since the 

late 1980s.560 Another company also entered from the cable radio business by deploying 

100 Mbps fiber wirelines along its already-existing nationwide electric-pole network.561

By the end of 2005, approximately 44 percent of Japanese households had broadband 

access.562

 Despite government subsidies for broadband deployment by approved service 

providers, as of 2003, it has been reported that all Japanese DSL providers were 

unprofitable, notwithstanding rapid growth in the market for Internet services.563 Thus, 

some commentators have questioned whether there is sufficient demand for fiber speeds 

up to 100 Mbps to justify the Japanese government’s industrial policy expenditures.564 

 

556 Id. at 26. 

557 Id. at 26-27. 

558 Japan Requires NTT to Provide Access for High-Speed Internet Network to Rivals, ASIA PACIFIC 

TELECOM, Aug. 1, 2006, at 6. 

559 In particular, Softbank / Yahoo! created a price shock in the marketplace by setting its monthly 

subscription price at $22, the lowest in the world at that time. This prompted other DSL providers, 

including NTT regional companies, to lower their prices in response. See Kushida & OH, supra note 547, 

at 28. 

560 ITU JAPAN STUDY, supra note 549, at 14. 

561 Id. 

562 Kushida & OH, supra note 547, at 5. 

563 Hidenori Fuke, The Spectacular Growth of DSL in Japan and Its Implications, COMM. & STRATEGIES

4th Quarter 2003, at 175, 180, available at http://www.idate.fr/fic/revue_telech/22/C&S52_FUKE.pdf. 

564 According to one study, beyond service area coverage, “[t]he second and more insurmountable 

challenge has to do with content, such as: when will there be content attractive enough to the majority of 

users to migrate from ADSL to FTTH [(Fiber to the Home)]?” ITU JAPAN STUDY, supra note 549, at 15. 
117

But a fall in the price of fiber-optic service to below $40 per month in 2003 apparently 

attracted significant demand.565 Other commentators have suggested that while local 

loop unbundling may have spurred short-term price competition, it may also give rise to 

long-term disincentives to invest in new facilities infrastructure and develop new service 

offerings.566

 Finally, Japan’s population density is relatively high at 876 people per square 

mile. Seventy-nine percent of its 127 million people live in urban areas.567 Thirty-eight 

percent of Japanese households live in apartment buildings. In Tokyo and Osaka, 66 

percent and 52 percent of households, respectively, live in apartment buildings.568 As in 

the case of South Korea, such demographics appear to facilitate the deployment of 

network infrastructure. 

3. The Netherlands 

The Netherlands has been cited as Europe’s leader in broadband penetration.569 

This achievement is often credited to facilities-based competition between cable and DSL 

in a generally deregulated environment.570 At the beginning of telecommunications 

liberalization in Europe during the 1990s, it was left largely to the national governments 

 

565 Id. at 31. As of 2003, the monthly price for 100 Mbps service was approximately $36.00. Fuke, supra

note 563, at 181, 186. 

566 In this view, “DSL services based on line-sharing demonstrate the problems with competition policy 

relying on the unbundling of network functions of incumbent carriers. . . . Other competitive carriers can 

enjoy this low wholesale price without taking the risk of . . . investing in an uncertain business.” Fuke, 

supra note 563, at 180-81. As a result, “[h]ere we are caught in a dilemma between the short-term 

promotion of service-based competition and the long-term promotion of technological innovations.” Id. at 

186. Similarly, because “DSL services are offered on NTT local companies’ metallic subscriber lines, it is 

virtually impossible for providers of DSL to differentiate their products. . . . This has led to a situation 

where competition is primarily based on marketing abilities, including price. Other DSL service providers 

were obliged to match these low prices.” Id. at 179. 

567 POPULATION REFERENCE BUREAU, JAPAN (2006), available at

http://www.prb.org/DataFind/datafinder7.htm. 

568 ITU JAPAN STUDY, supra note 549, at 34. 

569 See generally INFO. SOC’Y & MEDIA DIRECTORATE-GEN., EUROPEAN COMM’N, EU TELECOM RULES:

WHERE ARE WE NOW? 2 (2007), available at

http://ec.europa.eu/information_society/newsroom/cf/document.cfm?action=display&doc_id=266 (“The 

Netherlands is the leading country in the world in broadband penetration. Competition between networks 

and services has been increasing as cable operators cover almost the whole territory and offer, alongside 

several DSL providers, attractive and inexpensive packages to consumers.”). 

570 See id. See also generally AGENCY FOR INT’L BUS. & COOPERATION, THE NETHERLANDS MINISTRY OF 

ECON. AFFAIRS, BROADBAND AND GRIDS TECHNOLOGY IN THE NETHERLANDS [hereinafter AGENCY FOR 

INT’L BUS. & COOPERATION], available at http://www.hightechconnections.org/2005/broadband.pdf (last 

visited June 14, 2007). By 2006, in addition to the deployment of copper wirelines, ninety-eight percent of 

Dutch houses were connected to a cable TV network, with almost all of these networks offering broadband 

Internet services. Id. 
118

of individual European Union (“EU”) member states to decide whether and how local 

loops should be unbundled.571 During 1996 and 1997, Dutch government restrictions on 

offering telecommunications infrastructure were generally discontinued.572 Previously, 

incumbent monopoly telecom provider KPN had almost unrestricted rights in these fields. 

Local unbundling was implemented in 1999, and, consistent with subsequent EU rules, 

firms with significant market power also have special obligations, such as mandated 

interconnection at cost-based rates.573 The Dutch government also has subsidized 

Internet infrastructure projects and has provided tax breaks for computer purchases.574 In 

addition, the Netherlands generally is considered the most densely populated country in 

Western Europe, with an average population density of 1,037 people per square mile and 

65 percent of its population living in urban areas.575 As a result, over 70 percent of the 

Dutch population lives in an apartment building, attached row house, or semi-detached 

house.576

 

571 See generally Communication from the Commission to the European Parliament, the Council, the 

Economic and Social Committee and the Committee of the Regions: Fifth Report on the Implementation of 

the Telecommunications Regulatory Package, COM (1999) 537 final (Nov. 10, 2007), available at

http://ec.europa.eu/comm/information_society/policy/telecom/5threport/pdf/5threp99_en.pdf. 

572 See generally Nico van Eijk, Broadband Services and Local Loop Unbundling in the Netherlands, IEEE

COMM. MAG., Oct. 1999, at 2-3, available at http://www.ivir.nl/publications/vaneijk/broadband.pdf. 

573 E.g., Regulation 2887/2000, Unbundled Access to the Local Loop, 2000 O.J. (L 336) 4. The EU has 

continued to take subsequent measures to harmonize the way in which member states regulate access to 

communications networks. See generally Communication from the Commission to the European 

Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: 

12th Report on the Implementation of the Telecommunications Regulatory Package, COM (2007) 155 final 

(Mar. 29, 2007) [hereinafter EC 12th Report], available at

http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcement/annualreports/12t

hreport/com_2007_155_en.pdf. 

574 For example, the Dutch government has spent 106 million Euros on various research projects such as the 

GigaPort Next Generation Network, which is claimed to be the fastest research and development network 

in the world. See AGENCY FOR INT’L BUS. & COOPERATION, supra note 570. See also Kevin J. O’Brien, 

Dutch Found To Be the Most Computer Literate in World, INT’L HERALD TRIB., Feb. 21, 2006, available at

http://www.iht.com/articles/2006/02/21/business/pew.php (describing a 1997-2004 Dutch tax law that 

allowed workers to deduct from pretax wages the cost of personal computers if they were also used for 

business purposes); U.S. DEP’T OF STATE, 2006 INVESTMENT CLIMATE STATEMENT – THE NETHERLANDS

(2006), available at http://www.state.gov/e/eeb/ifd/2006/62022.htm (“[T]he Netherlands ranks eighth in the 

world [in Internet deployment] thanks to continued rollout of broadband services, internet-related 

legislation and government broadband programs. In 2004, the government embarked on a broadband 

action program aimed at creating a regulatory framework that will stimulate and facilitate broadband 

development.”). 

575 See FRANK SIDDIQUI, THE NETHERLANDS MINISTRY OF ECON. AFFAIRS, HEALTHY AND STRUCTURAL 

GROWTH OF DUTCH ECONOMY (2006), available at

http://www.hollandtrade.com/vko/zoeken/showbouwsteen.asp?bstnum=1423; POPULATION REFERENCE 

BUREAU, NETHERLANDS (2006), available at http://www.prb.org/DataFind/datafinder7.htm. 

576 STATISTICS NETHERLANDS, NETHERLANDS OFFICIAL STATISTICS 2000-3 (Autumn 2000), available at

http://www.cbs.nl/NR/rdonlyres/CB145B5F-068C-4086-B0D7-4BA74C3B6791/0/nos003.pdf. 
119

* * * 

Because the socio-economic status of individual countries and the historical 

nature of their telecommunications regimes can vary widely, comparisons of broadband 

deployment and adoption rates across countries may not be meaningful.577 It appears to 

be generally recognized that these measures can be affected by a number of factors.578 

Some observers suggest, therefore, that particular policies aimed at facilitating broadband 

deployment and adoption may have differential effects in different places, depending on 

the relevant circumstances.579 For the United States, its larger geographic size and 

relatively dispersed population make it difficult to compare broadband experiences 

directly with many of the smaller and more densely populated countries that are 

sometimes cited as global Internet leaders.580 As a result, although many commentators 

have urged U.S. policy makers to do more to facilitate the roll-out of broadband Internet 

services, at the same time, some observers have cautioned against trying to model U.S. 

policy decisions after those of other countries.581

 

577 See generally Robert M. McDowell, Commissioner, FCC, Address at Catholic University School of 

Law Symposium: Broadband Deployment in a Multi-Media World: Moving Beyond the Myths to Seize the 

Opportunities (Mar. 15, 2007), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC271555A1.pdf. See also FCC OECD ANALYSIS, supra note 538; CORREA, supra note 538. 

578 “Broadband transmission speeds vary across the EU, which on average still lag behind the US, Japan, 

and Korea. To some extent this can be explained by the high population density in South Korea and Japan, 

and the presence of more high capacity cable networks in the US compared to several major EU countries.” 

EC 12th Report, supra note 573, at 12. 

579 One commentator suggests, for example, that “[w]hereas the Nordic region and the Benelux countries 

[Belgium, Netherlands, and Luxembourg] are in favor of open [unbundled] networks, southern countries 

with a less-developed cable infrastructure fear that this would discourage investments.” Matthijs 

Leendertse, Don’t Stop at Local Loop, INDUSTRY STANDARD EUROPE, Jan. 17, 2001, available at

http://www.vandusseldorp.com/vdapinthepress/TheStandard%2017%20Jan%202001.htm. 

580 See McDowell, supra note 577, at 2 (“[When compiling statistics, the] OECD does not account for 

population density, which puts a country as a large as ours—with sizable rural areas—at a disadvantage. 

No other country above the U.S. on the OECD list occupies an entire continent like we do. No other 

country above on this list is 75 percent rural.”). 

581 For example, one commentator has cautioned that, “[i]t is undeniable that [population density] accounts 

for much of the difference between broadband penetration in the United States and Korea. This suggests 

caution in adopting those elements of Korean industrial policy that are most different from the general 

regulatory presumptions in the United States.” Speta, supra note 543, at 16. See also Seth Sacher & Scott 

Wallsten, What U.S. Broadband Problem?, CNET NEWS.COM, July 3, 2006, 

http://news.com.com/What+U.S.+broadband+problem/2010-1034_3-6090408.html (noting that OECD and 

other international statistics generally are self-reported and that the methodologies for compiling such 

statistics generally are not published). 
120

VII. ANTITRUST ANALYSIS OF POTENTIAL BROADBAND PROVIDER 

CONDUCT 

As explained in the preceding Chapter, an important issue raised in the debate 

over network neutrality regulation is whether the broadband market – however it may be 

defined – is competitive. The competitive issues raised in this debate, however, are not 

new to antitrust law, which is well-equipped to analyze potential conduct and business 

arrangements involving broadband Internet access. In conducting an antitrust analysis, 

the ultimate issue would be whether broadband Internet access providers engage in 

unilateral or joint conduct that is likely to harm competition and consumers in a relevant 

market. 

Section A of this Chapter provides broad principles that underlie the antitrust laws 

and explains that any type of antitrust analysis involving such conduct would entail a 

case-by-case evaluation of the procompetitive and anticompetitive effects of the conduct 

to determine its overall impact on consumer welfare. Section B explores some of the 

most likely antitrust theories that would apply to potential conduct by broadband 

providers, including exclusive dealing, vertical integration, and unilateral conduct. 

A. General Principles Underlying the Antitrust Laws 

The antitrust laws are grounded in the principle that competition – “that state of 

affairs in which output is maximized, price is minimized, and consumers are entitled to 

make their own choices”582 – serves to protect consumer welfare. This persistent focus 

on the consumer ensures that enforcement resources are directed at protecting consumers 

through the competitive process, not at protecting individual market players. 

Vigorous competition on the merits by a single firm, such as the charging by such 

firm of a price that may be higher than would occur in a market with more competitors, 

does not by itself constitute anticompetitive conduct. As the Supreme Court noted 

recently in the Trinko583 case, the charging of monopoly prices by a lawful monopolist by 

itself “is not only not unlawful; it is an important element of the free market system.”584 

Thus, the antitrust laws do “not give judges carte blanche to insist that a monopolist alter 

its way of doing business whenever some other approach might yield greater 

competition.”585 Empirical evidence and our enforcement experience confirm that 

competition itself can force changes on a market and erode monopoly profits. Indeed, it 

is the purpose of the antitrust laws to protect that competitive process. 

 

582 HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS PRACTICE § 

5.6b, at 258 (3d ed. 2005) (citing FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986)). 

583 Verizon Communs. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004). 

584 Id. at 407. 

585 Id. at 415-16. 
121

Conduct that has the potential to be both anticompetitive and harmful to 

consumers, under certain conditions, and procompetitive and capable of improving 

efficiency, under other conditions, is analyzed under the “rule of reason” to determine the 

net effect of such conduct on consumer welfare.586 In contrast, conduct that is always or 

almost always harmful to consumers – such as collusion among horizontal competitors – 

generally is deemed per se illegal under the antitrust laws.587 As discussed in the 

following section, these principles apply to Internet-related markets in the same manner 

as they do to other markets in our economy.

B. Potential Antitrust Theories 

The potential for anticompetitive harm exists in the various Internet-related 

markets, as it does in all markets. The FTC’s primary mission is to protect consumers by 

attacking unfair methods of competition and unfair or deceptive acts or practices,588 and 

some have called for antitrust enforcement against potential anticompetitive conduct by 

broadband providers.589 Antitrust enforcement – outside the merger review context – 

involves the ex post investigation and prosecution of anticompetitive practices, wherever 

they are found, rather than ex ante regulation to prevent or mitigate potential market 

failure.590

It appears that the competitive issues relating to last-mile access to consumers that 

have been raised in the network neutrality debate largely can be addressed through 

antitrust enforcement. Depending on the particulars, blocking access to the Internet by 

content or applications providers or discriminating in favor of a supplier with whom the 

broadband provider has an affiliated or contractual relationship would be analyzed, for 

example, under either Section 1 of the Sherman Act,591 as an exclusive dealing 

relationship, or under Section 2 of the Sherman Act,592 as a unilateral refusal to deal.593 

 

586 See, e.g., Ind. Fed’n of Dentists, 476 U.S. at 459 (balancing of competitive effects under rule of reason 

is appropriate “where the economic impact of certain practices is not immediately obvious”). 

587 See, e.g., NCAA v. Board of Regents, 468 U.S. 85, 103-04 (1984) (“Per se rules are invoked when 

surrounding circumstances make the likelihood of anticompetitive conduct so great as to render unjustified 

further examination of the challenged conduct.”). 

588 See supra Chapter II.A. 

589 See, e.g., G. Sohn, Tr. I at 100-01 (“We believe the FTC should investigate and act on allegations of 

anticompetitive conduct by broadband Internet access providers filed by consumers[] [and] content[,] 

service, and applications providers.”); Pepper, Tr. I at 132; Davidson, Tr. I at 232; Muris, Tr. II at 118. 

590 Current antitrust jurisprudence is cognizant of the costs of government intervention in cases where the 

conduct at issue may not actually harm – and indeed may benefit – competition. The error costs of such 

“false positives” are part of the antitrust enforcement calculus when enforcement authorities make a 

decision on intervention in any particular case. 

591 15 U.S.C. § 1. 

592 Id. § 2. 
122

Vertical integration into content or applications by acquisition would be analyzed under 

the merger laws.594 In addition, unilateral conduct on the part of broadband providers – 

including, for example, the degradation of Internet access service to force buyers into 

paying more for higher-quality service – would be analyzed under Section 2 of the 

Sherman Act.595

While these types of conduct are possible, the allegations of anticompetitive 

conduct by proponents of net neutrality regulation have for the most part been 

prospective. That is, there is little evidence to date of consumer harm from 

anticompetitive practices by ISPs or any other network operators; the allegations of 

anticompetitive conduct focus mainly on effects that may occur if certain actions, such as 

exclusive agreements or vertical integration, are undertaken in the future.596 The only 

discriminatory action that both sides of the debate have acknowledged occurred when, in 

2005, a small local telephone company allegedly blocked its customers from accessing a 

competing VoIP provider. The FCC took quick action and entered into a consent decree 

with the telephone company, Madison River, prohibiting the blocking of ports for VoIP 

traffic. The company also made a voluntary payment of $15,000 to the U.S. Treasury.597 

The record in the case, however, is sparse and does not contain any analysis of the 

competitive effects of the actions taken by Madison River. 

 1. Exclusive Dealing 

Exclusive dealing arrangements foreclose a seller’s competitors from doing 

business with the buyer for the duration of the arrangement. In the broadband area, ISPs 

might sign contracts with content or applications providers to provide exclusive, or 

preferential, access to consumers. For example, an ISP might arrange to allow access 

 593 Section 5 of the FTC Act, id. § 45, which prohibits “unfair methods of competition,” encompasses both 

Sherman Act standards. The Robinson-Patman Act, id. §§ 13-13b, 21a, which prohibits, among other 

things, a seller from discriminating in price between different buyers when the discrimination adversely 

affects competition, applies to sales involving “commodities”; it does not apply to sales of services or 

intangible items. See ABA SECTION OF ANTITRUST LAW, supra note 177, at 495 (collecting cases). As 

such, the Robinson-Patman Act would not apply to sales of broadband Internet access services or online 

content and applications. Cf. Metro Communs. Co. v. Ameritech Mobile Communs., Inc., 984 F.2d 739, 

745 (6th Cir. 1993) (holding that Robinson-Patman Act does not apply to sale of cellular telephone 

service). 

594 Section 7 of the Clayton Act prohibits mergers or acquisitions, the effect of which “may be substantially 

to lessen competition, or tend to create a monopoly.” 15 U.S.C. § 18. 

595 In addition, horizontal collusive conduct between or among broadband providers would be found to be 

illegal without an elaborate market analysis. However, we have seen no allegations of such conduct in the 

broadband area. 

596 See, e.g., Muris, Tr. II at 119 (“This push for regulation is not based, however, on the current robust 

marketplace.”). 

597 In re Madison River Communs., LLC, 20 FCC Rcd 4295 (2005) (consent decree). 
123

only to a single VoIP provider. Other VoIP providers might then be denied last-mile 

access to that ISP’s customers or end users. 

Antitrust analysis is guided by the question of whether specific conduct ultimately 

is harmful to competition and consumers.598 Under certain circumstances, exclusive 

dealing contracts can violate the antitrust laws.599 The courts analyze exclusive dealing 

contracts under the “rule of reason,” which balances the contracts’ procompetitive and 

anticompetitive effects.600 Thus, the net economic effect of the arrangement will 

determine whether it violates the antitrust laws. A detailed analysis of how an exclusive 

dealing arrangement affects competition is required, and – critically – that analysis goes 

beyond the number of foreclosed competitors.601 The FTC has held that “a proper 

analysis of exclusive dealing arrangements should take into account market definition, 

the amount of foreclosure in the relevant market, the duration of the contracts, the extent 

to which entry is deterred, and the reasonable justifications, if any, for the exclusivity.”602

Courts have decided exclusive dealing cases on a number of different factors. 

Although they have looked first at the amount of commerce foreclosed, there is no 

consensus on how much foreclosure will trigger liability. There appears to be a safe 

harbor for foreclosure of less than 30 to 40 percent of the relevant market,603 and even 

higher shares have been allowed.604 Other relevant factors in the foreclosure analysis 

 

598 See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (federal antitrust laws 

designed for “the protection of competition, not competitors”) (quoting Brown Shoe Co. v. United States, 

370 U.S. 294, 320 (1962)). 

599 See, e.g., United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005); United States v. Microsoft 

Corp., 253 F.3d 34 (D.C. Cir. 2001); Luria Bros. v. FTC, 389 F.2d 847 (3d Cir. 1968). 

600 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 44-47 (1984) (O’Connor, J., concurring); Tampa 

Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961). 

601 See, e.g., Thompson Everett, Inc. v. Nat’l Cable Adver., L.P., 57 F.3d 1317, 1326 (4th Cir. 1995) 

(plaintiff must show substantial anticompetitive effect); Roland Mach. Co. v Dresser Indus., 749 F.2d 380, 

394 (7th Cir. 1984) (plaintiff must show that the probable effect of the exclusion will be to raise prices 

above competitive levels or otherwise harm competition). 

602 Beltone Elecs. Corp., 100 F.T.C. 68, 204 (1982) (dismissal order). 

603 See, e.g., Minn. Mining & Mfg. Co. v. Appleton Papers Inc., 35 F. Supp. 2d 1138, 1143 (D. Minn. 1999) 

(30-40% at minimum); Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1196, 1212-14 (W.D.N.C. 

1989) (even 40% would not enable defendant to raise prices above competitive level). Cf. Microsoft, 253 

F.3d at 70 (“A monopolist’s use of exclusive contracts, in certain circumstances, may give rise to a § 2 

violation even though the contracts foreclose less than the roughly 40% or 50% share usually required in 

order to establish a §1 violation.”). 

604 See, e.g., Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162-65 (9th Cir. 1997) (upholding 

exclusive dealing contracts by firm with 55% market share that foreclosed 38% of the relevant market). 
124

include the length of the exclusive dealing contract,605 the presence of alternative 

distribution channels,606 ease of entry,607 and actual injury to competition.608

In the recent exclusive dealing case of United States v. Dentsply International, 

Inc.,

609 for example, the court held that a manufacturer of prefabricated artificial teeth 

violated Section 2 of the Sherman Act by means of its exclusivity arrangements with its 

several distributors.610 After finding that the defendant enjoyed monopoly power in the 

relevant market, the court ruled that the defendant’s exclusive dealing arrangements were 

an unlawful exercise of that power.611 In reaching that conclusion, the court considered, 

among other things, the alternative distribution channels available to the defendant’s 

competitors, finding that the use of such channels was not “practical or feasible in the 

market as it exists and functions.”612 

In the Internet access context, exclusive dealing cases would likely turn on market 

definition in the first instance. Such definition would involve both product and 

geographic dimensions. With respect to the product market, a court or agency would 

have to determine which online content and applications are substitutable or 

interchangeable by consumers by reason of the products’ characteristics, prices, and 

intended uses.613 A court or agency also would have to determine whether the 

geographic boundary of such market is local, regional, national, or, perhaps, global.614 In 

 

605 See id. at 1162 (one-year term held legal); accord Thompson, 57 F.3d at 1326. Longer terms may not 

survive challenge. See Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1307-08 

(9th Cir. 1982) (greater than 10 years held illegal). 

606 See CDC Techs., Inc. v. Idexx Labs., Inc., 186 F.3d 74, 80-81 (2d Cir. 1999); Roy B. Taylor Sales, Inc. 

v. Hollymatic Corp., 28 F.3d 1379, 1384-85 (5th Cir. 1994). 

607 See Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1059 (8th Cir. 2000). 

608 See Advanced Health-Care Servs., Inc. v. Radford Cmty. Hosp., 910 F.2d 139, 151 (4th Cir. 1990); 

Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 478-79 (7th Cir. 1988). 

609 399 F.3d 181 (3d Cir. 2005). 

610 Id. at 196. 

611 Id.

612 Id. at 193. 

613 An antitrust plaintiff also could challenge an exclusive dealing arrangement as harming competition in a 

broadband Internet access product market. 

614 Some commentators have argued that the online content and applications market is global, see, e.g., 

Verizon Communications Inc., Public Comment 60, at 23-24, or national, see, e.g., Sidak, supra note 287, 

at 470; Yoo, supra note 276, at 72-73. Others, however, have characterized this market as regional. See, 

e.g., Herman, supra note 267, at 134 (“The emphasis on national rather than regional market share is highly 

problematic. Not all Internet content providers care primarily about national market share. Several 

prominent regional Web sites exist within the boundaries of any given regional Bell or cable company . . . 

.”). 
125

sum, any exclusive dealing arrangement in the Internet content and applications market – 

like any such arrangement in any other market – would be subject to a market- and factspecific antitrust analysis. Indeed, it is not possible, based on generalized data or 

predictions of future business arrangements, to conclude that the online content and 

applications market suffers or will suffer from anticompetitive conduct. 

 2. Vertical Integration 

As discussed in Chapter IV, antitrust jurisprudence generally regards vertical 

integration as harmless or even beneficial to consumer welfare.615 Such integration, 

however, may be anticompetitive under certain circumstances. A vertical merger, for 

example, could foreclose opportunities and thereby harm competition.616 Such 

foreclosure might occur by either denying competitors access to essential inputs (for 

example, in the market for broadband Internet access) or denying access to downstream 

distribution outlets (for example, in the market for online content and applications).617 In 

the Internet access context, for example, an ISP that merges with or acquires a VoIP 

provider may have the incentive to deny access to its network to competing VoIP 

providers.618

Earlier court cases found vertical mergers to be illegal based primarily on the 

foreclosure of a small market share.619 More recent cases, however, have rejected a 

simplistic market share analysis and have insisted on a showing of anticompetitive 

effects.620 The FTC has brought a number of cases alleging downstream foreclosure that 

would harm competition. In CMS Energy Corp., for example, the FTC required an 

electric power company to divest certain generation assets before acquiring a utility with 

a monopoly natural gas pipeline due to concerns that the merged company would have an 

incentive to foreclose access to the pipeline to rival generation companies.621 In Ceridian 

 

615 Because vertical agreements can generate procompetitive efficiencies, they are less suspect than 

horizontal activity under long-accepted antitrust jurisprudence. See 11 HERBERT HOVENKAMP, ANTITRUST 

LAW ¶ 1902a, at 209 (2d ed. 2005) (“[H]orizontal agreements as a class deserve stricter scrutiny than (a) 

unilateral acts, (b) horizontal mergers, or (c) vertical agreements.”). 

616 See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294 (1962). 

617 Vertical mergers also may have anticompetitive effects when they are used, for example, to facilitate 

horizontal collusion by competitors or by public utilities to avoid the impact of rate regulation. See

HOVENKAMP, supra note 582, §§ 9.3d, 9.3e, at 385-86. 

618 See supra Chapter IV for a more detailed discussion of potential discrimination by vertically integrated 

ISPs. 

619 See, e.g., Brown Shoe Co., 370 U.S. 294; United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 

(1957). 

620 See, e.g., Alberta Gas Chems. Ltd. v. E.I. du Pont de Nemours & Co., 826 F.2d 1235 (3d Cir. 1987); 

Reazin v. Blue Cross & Blue Shield, Inc., 663 F. Supp. 1360, 1489 (D. Kan. 1987), aff’d in part, remanded 

in part, 899 F.2d 951 (10th Cir. 1990). 

621 CMS Energy Corp., 127 F.T.C. 827 (1999) (consent order). 
126

Corp., a marketer of trucking-fleet credit cards acquired the owner of the dominant pointof-sale system for fleet cards.622 The potential anticompetitive effect of the acquisition 

was the foreclosure of rival fleet-card owners from access to the only fleet-card 

processing system. The consent order settling this case required Ceridian to grant 

licenses to other fleet-card issuers to use the processing system. 

The merger between AOL and Time Warner raised many of the same issues that 

concern some proponents of net neutrality regulation today. At the time of the merger, 

AOL was the nation’s largest ISP and Time Warner owned cable television systems 

serving approximately 20 percent of U.S. cable households. One concern was that the 

merger would lessen competition in the residential broadband Internet access market and 

reduce AOL’s incentive to promote DSL broadband service as an emerging alternative to 

cable broadband, and that foreclosure of, or discrimination against, competitors of AOL 

by Time Warner could have harmed competition. The terms of the consent order settling 

the case required the merged company to provide non-discriminatory access in a number 

of markets. For example, the order required Time Warner to open its cable system to 

competitor ISPs and prohibited it from interfering with content passed along the 

bandwidth contracted for by non-affiliated ISPs. The order also required the company to 

make available at least one non-affiliated cable broadband ISP service before AOL began 

offering service and at least two other such services within 90 days to certain subscribers. 

The consent order also prevented the merged company from discriminating on the basis 

of affiliation in the transmission of content or from entering into exclusive arrangements 

with other cable companies with respect to ISP services.623

The AOL/Time Warner matter highlights the FTC’s ability to protect consumers 

in Internet markets from vertical integration that may have anticompetitive effects. 

However, internal expansion by a broadband provider into content or applications would 

not be covered by the merger laws. Discriminatory conduct by an integrated firm instead 

would be analyzed as unilateral conduct under Section 2 of the Sherman Act. 

 3. Unilateral Conduct 

Unilateral conduct by firms with sufficient market power can violate the antitrust 

laws if that conduct is deemed exclusionary or predatory.624 A court assessing such 

conduct under Section 2 of the Sherman Act, for example, will initially screen for 

monopoly power, which is “the power to control market prices or exclude 

 

622 Ceridian Corp., FTC Dkt. No. C-3933 (Apr. 5, 2000) (consent order), available at

http://www.ftc.gov/os/caselist/c3933.shtm. 

623 Am. Online, Inc. & Time Warner Inc., FTC Dkt. No. C-3989 (Apr. 17, 2001) (consent order), available 

at http://www.ftc.gov/os/caselist/c3989.shtm. 

624 The appropriate liability standard to apply under Section 2 to unilateral conduct, such as refusals to deal, 

tying, and bundling, recently has been the subject of considerable debate among antitrust practitioners, 

commentators, and the business community. The FTC and DOJ held hearings from June 2006 to May 2007 

to explore the appropriate legal framework for analyzing unilateral conduct. Information relating to these 

hearings is available on the FTC’s Web site at http://www.ftc.gov/os/sectiontwohearings/index.shtm. 
127

competition”625 in a relevant antitrust market.626 Monopoly power can be shown by 

direct evidence of control over prices in the relevant market.627 Where direct evidence is 

not available, indirect evidence, such as the defendant’s share of the relevant market and 

the existence of barriers to entry, may be used.628 There is no universally agreed upon 

market share that alone is sufficient to create an inference of monopoly power, but shares 

above 70 percent and below 50 percent are often predictive.629

If monopoly power can be shown, a plaintiff also must show exclusionary or 

predatory behavior: anticompetitive conduct that confers or protects, or otherwise 

extends, monopoly power.630 The mere exercise of lawfully acquired monopoly power, 

including the charging of monopoly prices, is not a violation of Section 2.631 Use of 

exclusive dealing contracts, or other vertical agreements, may support a monopolization 

claim.632 However, an exclusivity arrangement will not be condemned unless it leads to 

anticompetitive effects; “[t]hat is, it must harm the competitive process and thereby harm 

consumers.”633

 

625 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956). 

626 A court must be able to determine which particular product (e.g., broadband Internet access or online 

content and applications) and geographic markets a defendant is monopolizing or attempting to 

monopolize. See, e.g., Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993); United States v. 

Microsoft Corp., 253 F.3d 34, 50 (D.C. Cir. 2001). 

627 Am. Tobacco Co. v. United States, 328 U.S. 781, 789 (1946) (exclusion of competitors is proof of 

market power); Microsoft, 253 F.3d at 51 (prices substantially above competitive level are proof of market 

power). 

628 Microsoft, 253 F.3d at 51. 

629 See du Pont, 351 U.S. at 404 (75% would constitute monopoly power); Echlin Mfg. Co., 105 F.T.C. 

410, 478 (1985) (46.8% insufficient). See also ABA SECTION OF ANTITRUST LAW, supra note 177, at 231-

32 (“A market share in excess of 70 percent generally establishes a prima facie case of monopoly power, at 

least with evidence of substantial barriers to entry and evidence that existing competitors could not expand 

output. In contrast, courts virtually never find monopoly power when market share is less than about 50 

percent.”) (footnotes omitted). 

630 United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (defining exclusionary conduct as “the 

willful acquisition or maintenance of that power as distinguished from growth or development as a 

consequence of a superior product, business acumen, or historic accident”). 

631 Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979); HOVENKAMP, supra note 

582, § 6.3, at 273 (“The sale of output at a monopoly price is itself not sufficient to brand someone an 

unlawful monopolist. . . . Eventually the high profits will attract other producers into the market. 

Collectively these producers will increase output and prices will be driven to the competitive level.”). 

632 Microsoft, 253 F.3d at 70. 

633 Id. at 58. 
128

As indicated above, refusals to deal can be the basis of a Section 2 claim. 

Generally, even a firm with monopoly power has no duty to deal with a competitor,634 but 

that right is not “unqualified.”635 Under certain narrowly defined circumstances, a 

monopolist’s physical plant, facility, or other asset may be considered sufficiently 

essential to competition in a relevant market that it must be shared with competitors.636 It 

is unlikely, however, that the courts will extend any essential facility obligation to a 

duopoly, as some have characterized the Internet access industry.637 Even in a monopoly 

context, the courts have not looked with favor on refusal to deal cases – particularly 

essential facilities cases – in recent years. In Trinko, for example, the Supreme Court 

rejected as a basis for antitrust liability an allegation that a local exchange carrier 

(“LEC”) “had filled rivals’ orders on a discriminatory basis as part of an anticompetitive 

scheme to discourage customers from becoming or remaining customers of competitive 

LECs,”638 noting that the Court has been “very cautious in recognizing . . . exceptions”639

to a monopolist’s right to refuse to deal with competitors. In any event, an antitrust 

analysis of a refusal to deal claim or any other claim involving unilateral conduct on the 

part of a broadband provider would involve a fact-specific determination of whether the 

conduct at issue harms competition and consumers. 

 

634 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 600 (1985). 

635 Id. at 601. 

636 See, e.g., MCI Communs. Corp. v. AT&T, 708 F.2d 1081, 1132-33 (7th Cir. 1983) (setting forth test 

requiring showing of following elements: (1) control of the essential facility by a monopolist; (2) a 

competitor’s inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of 

the facility to a competitor; and (4) the feasibility of providing the facility). The Supreme Court recently 

has noted that it has never had occasion either to recognize or repudiate this “‘essential facilities’ doctrine 

crafted by some lower courts.” Verizon Communs. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 

398, 410-11 (2004). 

637 See supra Chapter VI.B. 

638 Trinko, 540 U.S. at 404. 

639 Id. at 409. 
129

VIII. CONSUMER PROTECTION ISSUES 

This Chapter analyzes the Federal Trade Commission Act’s prohibition against 

unfair and deceptive acts and practices as a framework for ensuring that consumers are 

adequately protected when purchasing and using broadband Internet access services. 

Consumer protection issues relating to broadband Internet access often are treated as 

secondary in the network neutrality debate. Having well-informed consumers of 

broadband Internet access, however, is crucial to fostering competition, and consumer 

protection issues will remain important with or without enactment of some form of 

network neutrality regulation. This Chapter offers a broad overview of basic consumer 

protection law in Section A; discusses the applicability of consumer protection laws to 

broadband Internet access services in Section B; and explores additional methods that can 

be used to protect the interests of consumers in the broadband services marketplace in 

Section C. 

A. An Overview of Section 5 of the FTC Act 

As discussed in Chapter II, Section 5 of the FTC Act prohibits entities from 

engaging in unfair or deceptive acts or practices in interstate commerce.640 An act or 

practice is deceptive if it involves a representation, omission, or practice that is likely to 

mislead consumers acting reasonably under the circumstances, and the representation, 

omission, or practice is material.641 Thus, an advertisement is deceptive if it includes 

material information that is false or that is likely to mislead a consumer acting reasonably 

under the circumstances. Likewise, an advertisement is deceptive if it omits material 

information, and that omission is likely to mislead a consumer acting reasonably under 

the circumstances.642 Requiring accurate disclosure of material terms allows consumers 

to compare similar services offered by one or multiple providers and weigh the different 

terms being offered in making decisions about what services to purchase. 

An act or practice is unfair, also in violation of the FTC Act, if it causes injury to 

consumers that: (1) is substantial; (2) is not outweighed by countervailing benefits to 

consumers and competition; and (3) consumers themselves could not reasonably have 

avoided.643 The Commission has used its unfairness jurisdiction in a broad array of 

cases. For example, the Commission has taken the position that cramming unauthorized 

charges for information services onto consumers’ telephone bills is an unfair practice.644 

In the data security context, the Commission has challenged the failure to implement 

 

640 5 U.S.C. § 45(a). 

641 Cliffdale Assocs., Inc., 103 F.T.C. 110, 164-65 (1984). See also FTC v. Pantron I Corp., 33 F.3d 1088, 

1095 (9th Cir. 1994); FTC v. Minuteman Press, 53 F. Supp. 2d 248, 258 (E.D.N.Y. 1998). 

642 Cliffdale Assocs., 103 F.T.C. at 175 (appending FTC Policy Statement on Deception). 

643 15 U.S.C. § 45(n); see also Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1363-66 (11th Cir. 1988). 

644 See, e.g., FTC v. Verity Int’l Ltd., 443 F.3d 48 (2d Cir. 2006). See also supra Chapter II.A for a 

discussion of this case. 
130

reasonable safeguards to protect the privacy of consumer information, where the failure 

causes substantial injury without offsetting benefits, as an unfair practice.645 The 

Commission also has taken the position that a unilateral change of contract may be an 

unfair practice. For example, in the context of lifetime service contracts used by an 

exterminator, the Commission challenged unilateral changes of material terms of the 

contract by the company as unfair trade practices.646 

B. Applicability of Consumer Protection Laws to Broadband Internet Access 

Services 

Participants at the FTC’s Broadband Connectivity Competition Policy Workshop 

primarily addressed two broad areas of consumer protection: (1) clear and conspicuous 

disclosure of material terms; and (2) security and privacy issues created by broadband 

Internet access services. Current federal consumer protection law can address both sets 

of concerns. Consideration of the first area suggests that consumers of broadband 

Internet access would benefit from an industry-initiated effort to: (1) more clearly 

identify those terms that are material to consumers’ decisions to purchase broadband 

Internet access services; and (2) devise methods to effectively disclose those terms. In 

the second area, the discussion at the Workshop indicated that further study of the 

privacy and security practices in the broadband Internet access industry is needed to 

address concerns that policy makers and others have expressed about those practices. 

However the current network neutrality debate is resolved, effective consumer 

protection in the broadband marketplace will be essential to robust competition in that 

market. Without truthful marketing and clear disclosure of material terms, consumers 

will lack the information they need to make informed decisions in the broadband Internet 

access marketplace. Likewise, inadequate protection of privacy of personal information 

and data security in the provision of broadband Internet access could hamper consumer 

confidence in the industry. 

1. Clear and Conspicuous Disclosure of Material Terms 

 In analyzing which acts or practices in the offering of broadband Internet access 

services are likely to be deceptive, Workshop participants discussed terms that could be 

considered material to consumers purchasing broadband Internet access services. “A 

 

645 See, e.g., CardSystems Solutions, Inc., FTC Dkt. No. C-4168 (Sept. 5, 2006) (decision and order), 

available at http://www.ftc.gov/os/caselist/0523148/0523148CardSystemsdo.pdf; DSW, Inc., FTC Dkt. 

No. C-4157 (Mar. 7, 2006) (decision and order), available at

http://www.ftc.gov/os/caselist/0523096/0523096c4157DSWDecisionandOrder.pdf; United States v. 

ChoicePoint, Inc., No. 106-CV-0198 (N.D. Ga.) (settlement entered on Feb. 15, 2006), available at 

http://www.ftc.gov/os/caselist/choicepoint/0523069stip.pdf; BJ’s Wholesale Club, Inc., FTC Dkt. No. C4148 (Sept. 20, 2005) (decision and order), available at

http://www.ftc.gov/os/caselist/0423160/092305do0423160.pdf. 

646 See Orkin Exterminating, 849 F.2d at 1363-66. See also FTC v. Certified Merch. Servs., Inc., No. 

4:02:cv44 (E.D. Tex. Dec. 30, 2002) (final judgment and order), available at

http://www.ftc.gov/os/2003/01/cms.pdf. 
131

claim is considered material if it ‘involves information important to consumers and, 

hence, [is] likely to affect their choice of, or conduct regarding a product.’”647 Express 

claims are presumed to be material, that is, likely to affect a consumer’s choice or 

conduct regarding a product.648 Existing case law easily would support determinations 

that certain types of terms common to most or all Internet service contracts, such as price 

and duration, are “material.” 

Identifying and reaching agreement on what other terms are material to 

consumers of broadband Internet access and how to provide those consumers with 

meaningful disclosure is more difficult. Among the terms and conditions that could be 

considered material, participants and commentators have focused most of their attention 

on connection speed, limitations on use, and broader network management policies. 

Speed was a particular focus of the participants. As a number of them discussed, 

the connection speed or speeds that a broadband provider offers to its customers, 

including both upload and download speeds, are terms that likely are material to 

broadband consumers.649 Indeed, speed is one of the primary qualitative features on 

which broadband providers are competing. Consumers can use online “speed test” tools 

to attempt to determine the actual transmission speeds that they are experiencing through 

their broadband connections. However, as one Workshop participant noted, the speed of 

a connection is not completely within the control of the customer’s last-mile broadband 

provider.650 Myriad factors beyond the control of the provider can affect the download 

speed that a customer experiences at any particular time, including, among others, the 

nature of the content or application that the customer is trying to access and the number 

of other users seeking to access the same content or application at the same time. 

Moreover, the type of information about access speeds that should be conveyed is 

a difficult question. One issue raised by the participants was whether a disclosure that the 

provider will give the consumer connection speeds of “up to” a certain speed is sufficient. 

That is, should the provider be required to make more detailed disclosures of average 

speeds or a range of minimum and maximum speeds? One participant argued that 

advertisements that tout “theoretical” bandwidth speeds that, in practice, are available 

only at limited times are likely to mislead consumers. He maintained that more effective 

disclosures would tell consumers the “effective” or typical bandwidth speed they could 

expect to receive.651 In response, another participant argued that, because the bandwidth 

speeds that consumers will receive at any given time may vary widely due to a number of 

conditions, disclosure of average bandwidth speeds would be more likely to mislead 

 

647 Kraft, Inc. v. FTC, 970 F.2d 311, 322 (7th Cir. 1992) (quoting Cliffdale Assocs., 103 F.T.C. at 165). See 

also FTC v. Pantron I Corp., 33 F.3d 1088, 1095-96 (9th Cir. 1994). 

648 Kraft, 970 F.2d at 322. 

649 Weiser, Tr. II at 87-88; Brenner, Tr. II at 97-98. 

650 Brenner, Tr. II at 97-98. 

651 Weiser, Tr. II at 87. 
132

consumers than disclosure of maximum, “up to” bandwidth speeds.652 He explained that 

the reason that such claims are effective is that consumers understand that “up to” claims 

are not the same as “average” claims and, thus, will discount the claims accordingly.653 

Several of the Workshop participants also discussed disclosure of limitations on 

use imposed by broadband providers, an issue often raised in the network neutrality 

debate. As previously discussed, material omissions that are likely to mislead consumers 

acting reasonably under the circumstances are deceptive in violation of Section 5 of the 

FTC Act. Some have argued, for example, that if a broadband provider intends to 

prohibit its customers from using their broadband connections to access specific content 

or applications, such as VoIP telephone calls or streaming video, the provider should 

disclose those limitations clearly and conspicuously before the transaction is 

completed.654 Similarly, it can be argued that usage limitations, such as a limitation on 

bandwidth usage or connection times, also should be disclosed.655 

Other commentators have suggested that network management practices, such as 

traffic discrimination and traffic shaping, are material terms that must be disclosed to 

consumers.656 Where a broadband provider gives priority to traffic coming to or from a 

particular content provider pursuant to a commercial relationship, the prioritization may 

enhance the performance of traffic to or from the favored content provider and degrade 

the performance of traffic to or from other content providers, including the favored 

provider’s competitors. This implicates the question of whether such commercial 

relationships are material terms that must be disclosed to potential customers. One 

commentator has argued that offers of broadband Internet access that do not disclose such 

relationships and their effects are likely to mislead consumers because consumers 

traditionally expect “that Internet access entails the ability of users to communicate with 

 

652 Muris, Tr. II at 132. 

653 Id.

654 See, e.g., G. Sohn, Tr. I at 101; Putala, Tr. II at 32; Tim Wu, Wireless Net Neutrality: Cellular 

Carterfone on Mobile Networks 22-23 (New America Foundation Wireless Future Program, Working Paper 

No. 17, 2007), available at

http://www.newamerica.net/files/WorkingPaper17_WirelessNetNeutrality_Wu.pdf. 

655 See Weiser, Tr. II at 88-89; Brenner, Tr. II at 94-95; Atkinson & Weiser, supra note 255. 

656 See, e.g., Center for Democracy & Technology, Public Comment 7, at 8 (“Public disclosure of 

prioritization arrangements could enable consumers to exert pressure against any policies they perceive as 

excessive ISP meddling in their choices among competing Internet content, services, and applications.”); 

Bancroft, Public Comment 3, at 1 (“[V]oluntary disclosure of the existing packet management practices on 

a residential user’s high-speed Internet access arrangement is the logical and necessary first step.”); van 

Gelder, Public Comment 59, at 26 (“Truth in advertising with full disclosure of [an ISP’s] intention to 

discriminate based on content provider would allow consumers to make informed choices about what they 

are paying for and from whom they wish to obtain Internet service.”). Cf. OECD Report, supra note 382, 

at 30 (“Other safeguards that policy makers could consider include encouraging or requiring ISPs to clearly 

state their broadband packet shaping policies to consumers before they sign up for broadband and keeping 

existing subscribers aware of any changes.”). 
133

any and all other Internet users without interference from one’s own ISP.”657 If 

broadband providers begin entering into pay-for-priority arrangements with content and 

applications providers, issues about the degree to which those arrangements must be 

disclosed no doubt will arise. Whether particular network management practices will be 

material to consumers (and therefore must be disclosed), however, cannot be determined 

in the abstract, but will require an examination of specific practices and consumer 

expectations. 

There is, further, the question of how these types of information can be disclosed 

clearly and conspicuously so that it is meaningful to consumers. One Workshop 

participant argued that the disclosures currently used by many broadband providers are 

inadequate to meaningfully inform consumers of the terms and conditions of their service 

plans.658 Meaningful disclosure may prove particularly challenging in this high-tech 

arena. Some studies of consumer behavior indicate that many pre-purchase disclosures 

for high-tech products and services, such as end user licensing agreements (“EULAs”) 

for computer software, are not written in language that laypeople can easily understand or 

are too lengthy.659 If consumers either do not read disclosures or do not understand them, 

the purpose of the disclosures is frustrated. The challenge of disclosures in the 

broadband access area, therefore, is to make such disclosures in a way that will enable 

consumers to understand both the services at issue and the ISPs’ descriptions of how 

those services are provided. This will allow consumers to make meaningful comparisons 

of the offerings of competing providers and to know whether they are receiving the 

promised services. 

The bundling of broadband Internet access with other services by many providers 

may raise special challenges regarding disclosure of material terms in the broadband 

Internet access area. In some instances, bundling may offer benefits to consumers and 

competition, but, in all instances, consumers must, of course, receive truthful and nonmisleading disclosure of material information.660 Prime examples of such bundling are 

the “triple play” packages offered by some telephone and cable television companies, in 

which broadband Internet access, telephone service, and video service are offered as a 

package with a single monthly price.661 The practice of bundling can complicate the task 

 

657 Center for Democracy & Technology, Public Comment 7, at 7. 

658 Kenney, Tr. II at 107. 

659 See, e.g., NATHANIAL GOOD, ET AL., STOPPING SPYWARE AT THE GATE: A USER STUDY OF PRIVACY,

NOTICE AND SPYWARE (2005), available at

http://www.law.berkeley.edu/clinics/samuelson/papers/other/SamuelsonClinicSpyware.pdf. 

660 For a useful discussion on bundling see Patrick DeGraba, The Loss Leader is a Turkey: Targeted 

Discounts from Multi-Product Competitors, 24 INT’L J. INDUS. ORG. 613 (2006); Yannis Bakos & Erik 

Brynjolfsson, Bundling and Competition on the Internet, 19 MKTG. SCI. 63 (2000); and Yannis Bakos & 

Eric Brynjolfsson, Bundling Information Goods: Pricing, Profits, and Efficiency, 45 MGMT. SCI. 1613 

(1999). 

661 Some providers have recently begun to offer “quadruple play” packages, which include mobile 

telephone services in addition to the other three services. 
134

of comparing the price and quality of the bundled broadband access with the offerings of 

other providers. Additionally, bundled packages can increase the transactional costs to a 

consumer who decides to switch to another broadband provider that is offering service 

with better quality or at a better price.662 

2. Unilateral Change of Contract 

Some broadband providers offer consumers discounted prices for service 

contracts with durations of a year or more. Consumers who subscribe to such offerings 

are likely to expect a consistent level of service throughout the contract period, and, as 

noted above, the Commission and the courts have found that a unilateral change of 

contract can be an unfair practice.663 This raises several important questions to consider 

as providers’ practices change over time. What duties do providers owe to those 

customers in an industry as dynamic as the broadband industry? If a provider begins to 

differentiate traffic among various content and applications providers in the midst of such 

a contract, how will it notify and receive the consent of its subscriber to do so? If a 

subscriber does not consent to such a change, but the provider implements it anyway, 

might the change in service be considered an unfair unilateral change in contract if it 

materially affects the service that the subscriber receives? 

3. Privacy and Data Security 

A number of Workshop participants recognized the heightened privacy and data 

security concerns raised by the volume and sensitivity of the user information available to 

broadband providers.664 The discussion and commentary on privacy and security 

concerns in the broadband industry has focused on two areas: (1) disclosure of privacy 

policies; and (2) data security. Further exploration of each area is justified. At the same 

time, it is worth noting that the FTC has used its full range of law enforcement authority 

to address privacy and data security concerns and will continue to do so, where 

appropriate, in the broadband arena. 

An important privacy question raised in this and many other contexts is whether 

companies in practice live up to their privacy and security policies. For more than a 

decade, the Commission has encouraged companies to provide information about their 

privacy practices. At the same time, the Commission has taken the position that 

companies are obligated to provide the privacy and security protections they advertise 

and has brought approximately a dozen cases alleging that failure to comply with stated 

privacy and security practices is a deceptive practice in violation of Section 5 of the FTC 

 

662 Kenney, Tr. II at 106. 

663 See, e.g., Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1363-66 (11th Cir. 1988). 

664 See Peha, Tr. I at 18-29; Kenney, Tr. II at 103, 129; Yokubaitis, Tr. II at 130-31. 
135

Act.665 We recommend that all companies, including broadband providers, closely 

review their privacy policies and actual practices to make sure that they are consistent. 

Some privacy and security concerns, however, may be unique to the broadband 

industry. At the Workshop, a participant described a variety of techniques and 

commercially available tools that broadband providers can use to analyze data packet 

streams, including, most notably, flow classification and deep packet inspection.666 Flow 

classification allows the provider to keep track of “things like packet size, and the time 

between packets, and stream duration.”667 Even if the packets are encrypted, such 

monitoring may allow a provider to harvest a significant amount of information about a 

user, including the kinds of applications the user is employing. Deep packet inspection 

allows the provider to identify not only the type of application being used, but also the 

content of the communication. Moreover, as the participant noted, a provider can crossindex the information it gets by monitoring a user’s traffic with other information such as 

“billing information, or [the user’s] credit card information.”668 While the participant 

focused on these tools as part of a discussion about how a provider can discriminate 

against or prioritize traffic, he also pointed out that these tools can be and are used to 

improve network security by identifying and protecting the network against viruses, 

spyware, and other dangers to the system.669 Not surprisingly, some participants 

expressed concern that the use of deep packet inspection and other monitoring tools could 

impinge on user privacy and network security.670

The privacy and security implications of the practices of broadband Internet 

service providers warrant continued monitoring and review. The Commission recognizes 

that there is no one-size-fits-all data security plan. Rather, data security plans must be 

adapted to the size and nature of the business, the nature of the tools available, and the 

security risks the business is likely to face. Like other companies that have access to 

 

665 See, e.g., Gateway Learning Corp., FTC Dkt. No. C-4120 (Sept. 10, 2004), available at

http://www.ftc.gov/os/caselist/0423047/040917do0423047.pdf; Petco Animal Supplies, Inc., FTC Dkt. No. 

C-4133 (Mar. 4, 2004), available at http://www.ftc.gov/os/caselist/0323221/050308do0323221.pdf; 

Microsoft Corp., FTC Dkt. No. C-4069 (Dec. 20, 2002), available at

http://www.ftc.gov/os/caselist/0123240/microsoftdecision.pdf; FTC v. Toysmart.com, LLC, No. 00-11341-

RGS (D. Mass. July 21, 2000), available at http://www.ftc.gov/os/2000/07/toysmartconsent.htm. 

666 Peha, Tr. I at 19. See also supra Chapter I.C.3. 

667 Peha, Tr. I at 19. 

668 Id.

669 Id. at 21-22. 

670 See, e.g., Kenney, Tr. II at 103; Yokubaitis, Tr. II at 130-31. As one participant noted, “the technology 

that broadband providers will use to facilitate tiering and network discrimination poses some substantial 

privacy issues.” Kenney, Tr. II at 103. Another participant was even more pointed, noting in his written 

comments that, “deep packet inspection will yield and reveal some of the most personal and proprietary 

information customers have.” Yokubaitis, Participant Presentation 1, at 5. 
136

large amounts of sensitive personal data, broadband providers have a serious obligation 

to take reasonable steps to protect that data. 

C. Additional Measures to Protect Consumers 

As discussed above, it is not always a simple matter to apply the FTC Act’s 

prohibitions against deceptive and unfair practices to broadband Internet access services. 

Moreover, both the telephone companies and the cable companies, which together 

provide the majority of broadband residential connections, have traditionally offered 

more highly regulated services. The move to a less regulated regime may require a 

significant conceptual shift for some in the industry to think about broad consumer 

protection standards that are applicable to broadband offerings. Commentators have 

proposed other measures – in addition to enforcement of the consumer protection laws – 

to ensure that the interests of consumers are adequately protected in this important 

industry. As discussed below, these measures include industry self-regulation and FTC 

guidance. 

 1. Self-Regulation by the Industry

One option for addressing consumer protection issues in the broadband industry is 

more active industry self-regulation. Self-regulation, for example, might take the form of 

voluntary industry-wide disclosure guidelines that would standardize the definitions of 

relevant terms and conditions of broadband access services to be disclosed to 

consumers.671 A Workshop participant suggested that industry self-regulation could take 

the form of a dispute-resolution regime modeled along the lines of the Better Business 

Bureau’s National Advertising Division and the National Advertising Review Board.672 

Such a mechanism could complement federal and state enforcement efforts by referring 

the most egregious or recalcitrant violators to law enforcement. 

Although it has its limitations, as a general matter, the Commission applauds 

industry self-regulation. Self-regulation plans in several industries have protected and 

informed consumers and benefited honest businesses by taking action against competitors 

that use deceptive or unfair practices.673 A more comprehensive approach to address the 

myriad consumer protection issues facing the industry, however, may be necessary. 

Moreover, any program of self-regulation is more effective when complemented by 

strong enforcement mechanisms. 

 

671 See, e.g., Bancroft, Public Comment 3, at 2. 

672 Weiser, Participant Presentation, at 9. 

673 See Deborah Platt Majoras, Chairman, FTC, Self Regulatory Organizations and the FTC, Address 

Before the Council of Better Business Bureaus (Apr. 11, 2005), available at

http://www.ftc.gov/speeches/majoras/050411selfregorgs.pdf. 
137

 2. FTC Guidance Regarding Consumer Protection Issues 

Some commentators have suggested that the FTC might effectively address some 

of the disclosure issues discussed above by developing guidance to industry regarding the 

critical information that broadband providers should disclose to their customers and 

potential customers.674 With respect to disclosure, such standardized information could 

allow consumers to conduct a meaningful comparison of the available offerings of 

broadband providers. Such guidance could be combined with consumer education 

campaigns to help consumers understand what the information contained in such 

disclosures means. 

FTC guidance may be useful should consumers encounter widespread difficulty 

obtaining or understanding material information about broadband offerings and service. 

In any case, we intend to continue to monitor industry practices, and, if appropriate, 

engage the industry in discussions of best practices. We note that the Commission 

already provides businesses with substantial information about how to provide nondeceptive disclosures to consumers. In particular, we recommend that broadband 

providers review the advice offered in the FTC’s business education guide on “Dot Com 

Disclosures,”675 which offers a comprehensive look at how to provide clear and 

conspicuous disclosure and focuses on adequate disclosure in online marketing. 

Even more recently, the Commission published a business guide, “Protecting 

Personal Information: A Guide for Business.”676 This guide provides tips about basic 

practices all businesses should consider when it comes to protecting the privacy of their 

customers and the security of their data. The plain-language guide includes checklists to 

get businesses thinking about the kind of data they collect, whether they need it, how they 

manage and store it, and how to properly dispose of it. The guide also provides tips 

about the basics of creating a plan for dealing with a security breach, in the event one 

does occur. We recommend that broadband providers review the guide and consider its 

applicability. As in other industries, FTC guidance can complement enforcement of the 

consumer protection laws in the broadband Internet access industry. 

 

674 Weiser, Participant Presentation, at 8. 

675 This guide is available at http://www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.shtm. 

676 This guide is available at http://www.ftc.gov/infosecurity/. 
138

IX. PROPOSALS REGARDING BROADBAND CONNECTIVITY 

 This Chapter discusses the various legal, regulatory, and other proposals relating 

to broadband Internet access that have been put forth to date. Section A reiterates briefly 

existing federal agency oversight in the broadband area and then explores various views 

on such oversight. Section B discusses more specifically the FCC’s recent broadband 

policy statement and the conditions imposed by the FCC in approving several recent 

mergers. Section C summarizes the relevant legislation that Congress has proposed. 

Finally, Section D reviews some of the other proposals offered by various interested 

parties. 

A. Existing Agency Oversight 

The central competition and consumer protection issues raised by broadband 

Internet access services are subject to the shared jurisdiction of the FCC, FTC, and DOJ. 

As discussed in Chapter II of this Report, FCC jurisdiction comes chiefly from the 

Communications Act, which establishes the FCC and provides for the regulation of 

telecommunications and information entities, services, and facilities.677 The FTC’s 

jurisdiction over broadband access comes chiefly from its statutory mandate to prevent 

“unfair methods of competition” and “unfair or deceptive acts or practices in or affecting 

commerce” under the FTC Act.678 The FTC’s authority to enforce the antitrust laws 

generally is shared with DOJ’s Antitrust Division.679 

As discussed in Chapter II, recent judicial and regulatory decisions have helped 

clarify the status of broadband Internet access services as information services not subject 

to the Communications Act’s common carrier requirements.680 Even proponents of 

imposing (or reimposing) some common carrier-type obligations,681 however, generally 

support FTC oversight of broadband Internet access, as do other network neutrality 

proponents, as well as net neutrality opponents. For example, one Workshop participant, 

recognizing FTC jurisdiction and the absence of common carrier regulation, advocated 

the importance of traditional competition law concerns and, at the same time, regulatory 

“language along the lines of the AT&T merger condition[s].”682 Another participant, 

 

677 47 U.S.C. §§ 151 et seq. See also supra Chapter II.B (discussing FCC jurisdiction). 

678 15 U.S.C. § 45(a)(1). See also supra Chapter II.A (discussing FTC jurisdiction).

679 See supra note 154. 

680 See supra Chapter II.C.

681 Under Title II common carrier regulation, broadband service providers would be required to, among 

other things, enable functional physical connections with competing carriers, 47 U.S.C. § 201(a), at “just 

and reasonable” rates, id. § 201(b), which the FCC would be empowered to prescribe, id. § 205, and would 

be prohibited from making “any unjust or unreasonable discrimination in charges, practices, classifications, 

regulations, facilities, or services. . . .” Id. § 202(a). 

682 Libertelli, Tr. I at 74, 79. Libertelli went on to distinguish between “net neutrality” and “251 or Title IIstyle non-discrimination requirements.” Id. at 126. The AT&T/BellSouth merger conditions imposed by 

the FCC are discussed below in Chapter IX.B. 
139

advocating further regulation, and apparently critical – as a policy matter but not a legal 

one – of the Brand X decision, argued that “[t]he FCC and FTC often have concurrent 

jurisdiction, and the public would be well served if that were the case here, as well.”683 

Yet another participant, noting with caution that the FTC “has already testified twice 

before Congress, to oppose measures that would effectively extend the common carrier 

exemption to broadband,” recognized FTC jurisdiction and the importance of the FTC’s 

ability to protect the role of consumer information in competitive markets by enforcing 

existing FTC Act provisions.684 Several participants were supportive of FTC jurisdiction, 

but opposed to further regulation, advocating, for example, a cautious, case-by-case 

application of current legal standards.685

Several participants highlighted the importance of FTC jurisdiction with regard to 

consumer protection concerns in particular.686 One participant suggested that the 

classification of broadband services as information services provided not just FTC 

consumer protection authority, but, pursuant to that authority, an institutional capacity 

and experience in enforcing such provisions.687 That participant argued that the FCC, in 

its enforcement of the Communications Act, has no substantial institutional history with 

consumer protection matters.688 Another participant argued, similarly, for the importance 

of adequate consumer information and the authority, expertise, and experience of the 

FTC’s “historical consumer protection mission,” for enforcing consumer access to such 

information.689 Yet another participant argued that, because transparency and disclosure 

 

683 G. Sohn, Tr. I at 102. Sohn, however, did not advocate a return to Title II regulation: “I don’t know 

anybody who is talking about going back to Title II. . . . [T]hat is not what this debate is about.” Id. at 125. 

684 See Putala, Tr. II at 32 (the FTC “has jurisdiction over broadband connectivity, and everyone should be 

aware and watch very closely”); id. at 32-33 (regarding FTC Act enforcement). See also Center for 

Democracy & Technology, Public Comment 7, at 7 (“The FTC could send an important signal to the 

marketplace by publicly reiterating that . . . it will be on alert for signs of unfair competition in the 

broadband marketplace and will not hesitate to take enforcement action.”); BT Americas Inc., Public 

Comment 5, at 2 (“Until such time as effective competition emerges, the Federal Trade Commission should 

adopt a policy of enhanced antitrust oversight and enforcement to deter abuse of market power.”). 

685 See, e.g., Pepper, Tr. I at 81 (advocating enforcement of the FTC Act against concrete violations, but 

against further regulation); Muris, Tr. II at 121 (“[Competition law enforcement] plays an important but 

limited role to supplement the common law. It acts as a check on conduct that interferes with the proper 

functioning of the market, particularly collusion and fraud.”); Wolf, Tr. II at 144, 149 (arguing for 

sufficiency of existing agency oversight and antitrust law framework and that there is “no current 

demonstrated need for the proposed legislation or regulation”). 

686 See, e.g., Weiser, Tr. II at 86-87; cf. Putala, Tr. II at 32-33 (citing FTC Commissioner Leibowitz on 

importance of transparency and disclosure). 

687 Weiser, Tr. II at 86-87. See also id. at 123 (“There are serious collective action problems for consumers, 

and also expertise issues for regular common law courts. The FTC has an opportunity here to basically be 

an advocate for consumers, and to take cases that consumers would not prosecute on their own . . . .”). 

688 Id. at 86-87. That participant also questioned the jurisdictional authority of state public utility 

commissions in the area of broadband Internet access. See id. at 86, 123. 

689 Pepper, Tr. I at 91. 
140

were among “the most critical issues regarding the Internet,” FTC enforcement actions 

aimed at material failures to disclose were of central importance.690

 Several Workshop participants recognized the importance of promoting and 

protecting competition in the area of broadband Internet access, and several participants 

linked these goals to the question of FTC jurisdiction explicitly, sometimes linking 

consumer protection and competition law questions. For example, one participant argued 

that the FTC has broad jurisdiction to protect consumers through enforcement of both the 

competition and consumer protection provisions of the FTC Act, as well as its research, 

education, and advocacy tools on behalf of consumers.691 At the same time, the 

participant argued for the maintenance of the current regulatory structure, in tandem with 

market forces and common law remedies, and cautioned that regulators and lawmakers 

be wary of the costs of regulation, especially as they might arise from “prospective” 

regulation undertaken prior to evidence of significant market failure.692 Another 

participant advocated that “the FTC should play a leadership role in protecting consumers 

and competition, by exercising its authority, experience, resources, and expertise, on a 

case-by-case basis.”693

As noted above, the question of whether existing law and agency oversight are 

adequate to address problems that may arise in broadband Internet access is a contentious 

one. One participant expressed concern regarding the potential adequacy of antitrust 

enforcement and endorsed the passage of proposed network neutrality legislation.694 

Other participants and commentators also have questioned the adequacy of antitrust 

enforcement to address concerns identified by network neutrality proponents.695 Other 

 

690 Putala, Tr. II at 32-33 (material failures to disclose should be regarded as “unfair, deceptive, and in 

violation of the FTC Act”). 

691 Muris, Tr. II at 119-20; cf. Weiser, Tr. II at 86 (FTC “can do a great service” bringing competition law 

tools to bear on broadband services, but that tractable “low hanging fruit” issues were more in the realm of 

consumer protection). 

692 Muris, Tr. II at 119-22; see also Sidak, Tr. I at 110 (“[I]t’s important to try to separate the purely 

hypothetical harms . . . from the problems that have been observed and remedied . . . .”); Wolf, Tr. II at 149 

(“asserted fears . . . are hypothetical at best”). Some commentators also expressed the general notion that 

“regulation should not be introduced absent a finding that there is pervasive otherwise anticompetitive 

conduct that cannot be addressed by the antitrust laws.” American Bar Association Section of Antitrust 

Law, Public Comment 2, at 1. 

693 Pepper, Tr. I at 81 (advocating enforcement of the FTC Act against concrete violations, but against 

further regulation). 

694 See Misener, Tr. II at 140 (advocating passage of the “Dorgan-Snowe bill”); cf. Bachula, Tr. II at 172 

(“relying on after the fact enforcement through the anti-trust laws is not a practical remedy for 

universities”). 

695 See, e.g., Farrell, Tr. I at 158-59 (“It’s often been suggested . . . that because these problems are, in a 

broad sense, competition problems, you could address them ex post with anti-trust. . . . I am not convinced 

that anti-trust, as currently enforced, is going to do a good job on those potential problems.”); Herman, 

supra note 267, at 139 (“Especially in the rapidly evolving market of online content and services, antitrust 

enforcement is far too slow a remedy for anticompetitive behavior to save embattled products. . . . If it is to 
141

participants argued that additional legal force should be given to existing FCC policy 

statements or certain transaction-specific merger conditions.696 

In contrast, several participants argued that existing law and oversight were 

adequate and that further regulation was bound to be costly.697 One participant argued 

that federal and state agencies, as well as the private bar, “are all empowered right now 

and have tools at their disposal that may be used if there is indeed anti-competitive or 

unfair tactics engaged in by broadband providers.”698 He concluded that “existing law 

provides sufficient oversight . . . especially in light of the adverse unanticipated 

consequences of proposed new regulation.”699 Another participant insisted that antitrust 

law “can and must be sufficient to handle” concerns that have been raised about 

broadband access and blocking.700

B. FCC Policy Statement and Merger Conditions

Several Workshop participants highlighted the importance of the FCC’s recently 

issued broadband access principles,701 and several suggested that particular merger 

conditions imposed by the FCC ought to be regarded as a model for future broadband 

regulation.702

As noted in Chapter II of this Report, then-FCC Chairman Michael Powell 

challenged the industry, in a 2004 address, to preserve the following four central 

“Internet Freedoms”: 

(1) The “Freedom to Access Content . . . consumers should have access to their 

choice of legal content” (within “reasonable limits” imposed by legitimate 

network management needs); 

 keep affected products from sliding into oblivion, any network neutrality regulation should go through the 

FCC.”). 

696 See, e.g., Libertelli, Tr. I at 79. The question of whether various FCC merger conditions or policy 

statements should serve as a model for future regulation is discussed in Section B of this Chapter, infra. 

697 See, e.g., Muris, Tr. II at 122; see also Waz, Tr. II at 156-58. 

698 Wolf, Tr. II at 145; see also American Bar Association Section of Antitrust Law, Public Comment 2, at 

1, 8. 

699 Wolf, Tr. II at 145; see also Small Business and Entrepreneurship Council, Public Comment 49, at 1 

(“Such ‘pre-regulation’ without proof that anything harmful has been or will be done undoubtedly will have 

unintended consequences for the development of the Internet, and in turn for our nation’s entrepreneurs.”). 

700 Kahn, Tr. I at 190-91. 

701 See, e.g., Pepper, Tr. I at 85. 

702 See, e.g., Libertelli, Tr. I at 79; G. Sohn, Tr. I at 100. 
142

(2) The “Freedom to Use Applications . . . consumers should be able to run the 

applications of their choice” (within service plan limits and provided the 

applications do not “harm the provider’s network”); 

(3) The “Freedom to Attach Personal Devices . . . consumers should be permitted 

to attach any devices they choose to the connection in their homes” (within 

service plan limits, provided the devices do not “harm the provider’s network 

or enable theft of service”); and 

(4) The “Freedom to Obtain Service Plan Information . . . consumers should 

receive meaningful information regarding their service plans” (so that 

“broadband consumers can easily obtain the information they need to make 

rational choices.”).703

 Also discussed in Chapter II, an overlapping set of broadband connectivity 

principles were articulated by the FCC the next year in the Broadband Policy Statement 

that accompanied the Wireline Order. Those principles too were generally supportive of 

consumer access, as they recognized the importance of the following: 

(1) The ability of consumers to “access the lawful Internet content of their 

choice”; 

(2) the ability of consumers to “run applications and use services of their choice, 

subject to the needs of law enforcement”; 

(3) the ability of consumers to “connect their choice of legal devices that do not 

harm the network”; and 

(4) the existence of “competition among network providers, application and 

service providers, and content providers.”704

Support for these principles has been broad,705 indeed considerably broader than 

agreement on their implementation or sufficiency. First, there has been disagreement 

regarding the question of whether the principles should be codified, via regulation or 

statute.706 This question is grounded in part in the belief – expressed by Workshop 

participants and other commentators – that the principles are not legally enforceable.707 

 

703 See supra text accompanying notes 214-15 (regarding Remarks of Michael K. Powell, “Preserving 

Internet Freedom: Guiding Principles for the Industry”). 

704 See supra text accompanying notes 216-17 (regarding FCC Broadband Policy Statement). 

705 See, e.g., Pepper, Tr. I at 85 (“wide agreement that the connectivity principle should be followed”); 

Consumers for Cable Choice, Public Comment 10, at 2 (“The [FCC’s] Broadband Policy Statement is an 

available and viable deterrent against unjustly discriminatory conduct.”); National Association of 

Manufacturers, Public Comment 28, at 2 (opposing network neutrality regulation but stating: “[W]e 

embraced the ‘four freedoms’ later adopted by the [FCC] as official policy in 2005. The principles . . . are 

working.”). 

706 See, e.g., Pepper, Tr. I at 85 (“The debate is whether or not Congress should codify them . . . .”). 

707 See, e.g., Libertelli, Tr. I at 117 (“[W]e’re talking about a policy statement; we’re not necessarily talking 

about a binding rule of decision. And so, more work could be done to make those principles binding on the 

network owners.”); Comstock House Testimony, supra note 265, at 23, 35. 
143

Second, there has been disagreement regarding the question of whether the principles 

should be “a floor, or . . . a ceiling.”708 One participant favored “case-by-case 

enforcement of access principles,” while arguing against codification of the principles 

and other significant additions to extant competition law, on the grounds that additional 

regulation was liable to suppress investment, and more generally, that the costs of 

additional regulation were likely to exceed its potential benefits.709 As noted in the 

previous section, several participants echoed this concern about the costs of additional 

regulation more generally.710 Others argued that “the four principles may be a good place 

to start,” but that they represented “a necessary, but not sufficient, protection of openness 

on the Internet.”711 Yet another participant questioned why such principles should apply 

to network operators but not content and applications providers.712

While these abstract principles do not themselves specify the particulars of 

substantive regulatory implementation, FCC enforcement action in the Madison River

matter713 is instructive about the implications of the principles. In fact, Madison River

has been used as a basis for: (1) arguments on behalf of additional regulation – on the 

basis that the underlying conduct in Madison River demonstrates very real market 

temptations to engage in harmful blocking that may warrant regulatory resolution;714 (2) 

arguments against additional regulation – several participants observed that the 

underlying conduct alleged in Madison River appears to be rare, if not unique,715 while 

 

708 Ohlhausen, Tr. I at 115. 

709 See Pepper, Tr. I at 90-91. 

710 See supra text accompanying notes 697-99. 

711 Libertelli, Tr. I at 117; accord G. Sohn, Tr. I at 116 (regarding the need for, among other things, a fifth 

“non-discrimination” principle). 

712 See Sidak, Tr. I at 117-18. 

713 In re Madison River Communs., LLC, 20 FCC Rcd 4295, 4297 (2005). See supra notes 217 and 233 

for additional information regarding this matter. 

714 Various proponents of net neutrality have cited the matter as illustrating the threat to access that would 

be posed by market pressures in favor of discrimination, absent their favored regulations. See, e.g., 

William D. Rahm, Watching Over the Web: A Substantive Equality Regime for Broadband Applications, 24 

YALE J. ON REG. 1, 2, 6 (2007) (stating that “[t]hose who say the Internet has no gatekeeper have never 

heard of the Madison River case” and arguing for a “substantive equality” regime for broadband access). 

715 See, e.g., Pepper, Tr. I at 89-90 (“[T]o date there has only been one case of anti-competitive conduct . . . 

that has been brought to the FCC. And this . . . was the Madison River case, which was quickly remedied 

by the Commission . . . .”); Kahn, Tr. I at 186 (“[T]he only case I know that has been cited as an argument 

for some sort of regulatory intervention is the one – the Madison River case.”); Sidak, Tr. I at 104 (“The 

one instance in which [blocking content] occurred has been a rural telephone company, and that is not a set 

of facts from which we can extrapolate to the behavior that would be followed by network operators 

supplying service to the vast majority of Americans.”); see also Verizon Communications Inc., Public 

Comment 60, at iii (“This isolated episode of a single rural company’s action is a slim reed on which to 

base the monolith of broadband regulation.”). 
144

others observed that the conduct at issue was conspicuous and easily disciplined under 

existing authority;716 (3) intermediate positions;717 and (4) a suggestion that the alleged 

discrimination in that case was in fact the by-product of overly restrictive regulation.718

 Participants in the broadband policy debate also have regarded FTC and FCC 

merger conditions – in particular, those attached to the AOL/Time Warner and the 

AT&T/BellSouth mergers – as significant. As discussed in Chapter II, the FTC 

challenged the proposed merger between AOL and Time Warner and entered into a 

consent order that required the merged entity to, among other things, open its cable 

system to competitor Internet service providers, including those offering broadband 

services, on a non-discriminatory basis, for all content.719 The order also prevented the 

company from interfering with the content of non-affiliated ISPs.720 Following the 

FTC’s review, the FCC added conditions that would have pertained to AOL advanced 

instant-messaging (“IM”) services, if AOL had developed them.721

 As with the AOL/Time Warner merger, the parties to the AT&T/BellSouth 

merger entered into a voluntary, enforceable agreement regarding the terms of the merger 

and certain post-merger conduct.722 These included, among other things, certain 

interconnectivity and related pricing conditions. Moreover, the agreement contains an 

express commitment to follow the four principles articulated in the FCC’s Broadband 

Policy Statement, for a period of thirty months following the merger closing date.723 In 

addition, the combined company committed to maintaining a “neutral network”; that is, 

not to provide or sell to Internet content, applications, or service providers, 

including those affiliated with AT&T/BellSouth, any service that 

privileges, degrades, or prioritizes any packet transmitted over 

 

716 See, e.g., Kahn, Tr. I at 186 (“[A] more obvious case of an abuse of a vertical position I cannot imagine. 

And of course, it was properly treated, pre-emptorially, both in the United States and Canada.”); Pepper, 

Tr. I at 89-90 (“[T]he Madison River case . . . was quickly remedied by the Commission . . . .”). 

717 See, e.g., Farrell, Tr. I at 156-60 (calling Madison River “arguably” a case of leveraging, and advocating 

“real” and “substantial” reasons for concern, but caution in seeking a “middle ground”). 

718 See Ford, Tr. II at 235-36. 

719 Am. Online, Inc. & Time Warner, Inc., FTC Dkt. No. C-3989 (Apr. 17, 2001) (consent order), available 

at http://www.ftc.gov/os/2001/04/aoltwdo.pdf. 

720 Id. 

721 In re Applications for Consent to the Transfer of Control of Licenses & Section 214 Authorizations by 

Time Warner Inc. & Am. Online, Inc., Transferors, to AOL Time Warner Inc., Transferee, 18 FCC Rcd 

20595 (2001) (memorandum opinion and order). 

722 In re AT&T Inc. & BellSouth Corp., Application for Transfer of Control, 22 FCC Rcd 5662 (2007) 

(memorandum opinion and order). 

723 Where not otherwise specified, the conditions of the merger were to hold for a period of 42 months 

following the merger closing date. 
145

AT&T/BellSouth’s wireline broadband Internet access services based on 

its source, ownership, or destination.724

 As with the FCC broadband principles discussed above, commentators have cited 

these merger conditions for varied, if not contrary, propositions. One Workshop 

participant suggested that regulators adopt “language along the lines of the AT&T merger 

condition[s].”725 Another participant recommended that the AT&T merger conditions 

represented a tractable definition of network neutrality, and a “good place to start” in 

discussing non-discrimination policy.726 Not all have been as supportive of these 

conditions. Another participant argued that they would work to “prohibit procompetitive, pro-consumer [improvements] in quality of service and prioritization . . . 

.”727 Two FCC Commissioners generally approving of the merger – including Chairman 

Martin – suggested that certain conditions were “unnecessary and may actually deter 

broadband infrastructure investment.”728 In particular, their joint statement suggested 

that, “[t]he conditions regarding net-neutrality have very little to do with the merger at 

hand and very well may cause greater problems than the speculative problems they seek 

to address.”729 

C. Legislative Proposals 

During the 109th Congress, telecommunications reform was a high priority and 

the focus of numerous congressional hearings in both the House and the Senate.730 At 

many of those hearings, network neutrality played a significant role in the debate on the 

shape of telecommunications reform. The debate over the inclusion and nature of net 

neutrality provisions appears to have ultimately prevented comprehensive telecom reform 

 

724 See AT&T Inc. & BellSouth Corp., 22 FCC Rcd at app. F. 

725 Libertelli, Tr. I at 78-79. 

726 G. Sohn, Tr. I at 100, 127-28. 

727 Pepper, Tr. I at 121. 

728 AT&T Inc. & BellSouth Corp., 22 FCC Rcd at 5826 (Chairman Martin & Comm’r Tate, concurring). 

729 Id. 

730 Telecommunications reform was the subject of over twenty hearings in the Senate Commerce, Science, 

and Transportation Committee (see S. REP. 109-355, at 4 (2006)) and six in the House Committee on 

Energy and Commerce (see H.R. REP. 109-470, at 6-8 (2006)) in 2006. 
146

from being enacted in the last Congress.731 At least eight legislative proposals addressing 

net neutrality were introduced in the House and Senate.732

The House of Representatives was the first to pass comprehensive telecom 

legislation and sent H.R. 5252, the “Communications, Opportunity, Promotion and 

Enhancement Act (COPE Act),” to the Senate.733 H.R. 5252 was amended in the Senate 

Commerce, Science, and Transportation Committee and then forwarded to the full 

Senate, where its consideration was blocked by Senators who insisted that the legislation 

include network neutrality provisions.734

The change in party control in the 110th Congress has resulted in two advocates 

for net neutrality principles becoming Chairmen of the House and Senate committees 

with primary jurisdiction over telecommunications. In the House of Representatives, 

Rep. Ed Markey (D-MA), the sponsor of a net neutrality measure during the previous 

Congress, is now Chairman of the House Energy and Commerce Subcommittee on 

Telecommunications and the Internet.735 To date, this Committee has not introduced net 

neutrality legislation. 

In the Senate, Senator Byron Dorgan (D-ND) is now Chairman of the Senate 

Commerce, Science, and Transportation Subcommittee on Interstate Commerce, Trade, 

 

731 See, e.g., Press Release, Office of Sen. Ron Wyden, Wyden Blocks Telecom Legislation Over 

Ineffective Net Neutrality Provision (June 28, 2006), available at

http://wyden.senate.gov/media/2006/06282006_net_neutrality_holds_release.html. 

732 Of the bills introduced in the 109th Congress, one (S. 2917) would have amended the Communications 

Act of 1934 to establish certain net neutrality duties for broadband ISPs. A second bill (H.R. 5417) would 

have amended the Clayton Act to make certain non-neutral practices illegal. Five other bills (H.R. 5252, 

H.R. 5273, S. 2360, S. 2113, and S. 1504) would have given the FCC authority to enforce various types of 

neutrality rules. The eighth bill (S. 2686) would have required the FCC to report on developments 

regarding Internet access. 

733 H.R. 5252, sponsored by Rep. Joe Barton (R-TX), was passed on June 8, 2006, by a vote of 321-101. 

The bill would have given the FCC explicit authority to enforce its 2005 Broadband Policy Statement; 

authorized a maximum penalty of $500,000 for each violation of such statement, with the FCC having 

exclusive authority to adjudicate complaints; and required a study from the FCC on whether the objectives 

of the policy statement and principles were being achieved. 

734 The Senate Commerce, Science, and Transportation Committee held a three-day markup where a net 

neutrality amendment offered by Senators Dorgan and Snowe failed by one vote. H.R. 5252, as amended 

by the Senate Commerce Committee, included an “Internet Consumer Bill of Rights” that would, among 

other things: require that ISPs allow subscribers choice to access and post lawful content, and to access any 

Web page, application, software, and search engine; allow subscribers to connect any legal device that does 

not harm any ISP’s network; allow subscribers to receive clear and conspicuous notice on price, speed, 

capabilities, and limitations of any Internet service offered to the public; require that ISPs offer stand-alone 

Internet service to their subscribers; authorize the FCC to impose fines of $500,000 per violation; and 

prohibit the FCC from promulgating any regulations beyond those specifically provided in the bill. 

735 Rep. Markey introduced H.R. 5273, the “Network Neutrality Act of 2006,” which would have imposed 

certain non-discrimination and disclosure duties on broadband ISPs. The bill also would have required the 

FCC to create a complaint resolution system for addressing alleged violations of such duties. 
147

and Tourism.736 Senator Dorgan, along with Senator Olympia Snowe (R-ME), has 

introduced S. 215, the “Internet Freedom Preservation Act,” which would amend the 

Communications Act of 1934 to establish certain Internet neutrality duties for broadband 

ISPs, including not interfering with or discriminating against the ability of any person to 

use broadband service in a lawful manner. The bill would allow ISPs to engage in certain 

activities to protect network security and to offer consumer protection services, such as 

parental controls on accessing content. At the same time, ISPs would be prohibited from 

requiring a subscriber to purchase a bundle of services as a condition on the purchase of 

broadband Internet access service. Additionally, the FCC would be required to give a 

report to specified congressional committees on ISPs’ delivery of broadband content, 

applications, and services. The bill has been referred to the Senate Commerce 

Committee.737 

D. Other Proposals Relating to Broadband Connectivity 

 In addition to the regulatory and legislative proposals discussed above in Sections 

A-C, various interested parties have developed both general principles and specific 

proposals relating to broadband connectivity. Following is a brief discussion of some of 

these proposals. 

USC Annenberg Center. The University of Southern California Annenberg 

Center has articulated five “Principles for Network Neutrality.”738 First, network 

operators and customers “both should win.” Network operators should be able to benefit 

from their investments, thereby encouraging infrastructure deployment. Customers 

should have the option of unrestricted access to the “global public Internet.” Second, any 

regulation should be defined and administered “on a nationally uniform basis with a light 

touch.” Any such regulation should be aimed primarily at markets where network 

operators have significant market power and should emphasize “prompt enforcement of 

general principles of competition policy, not detailed regulation of conduct in 

telecommunications markets.” Third, network operators should provide a “Basic Access 

Broadband” service that offers a meaningful, neutral Internet connection. Beyond this 

basic service, network operators should be free to determine all service parameters, 

including performance, price, and prioritization of third-party data traffic. Fourth, 

 

736 In the Senate, the Commerce, Science, and Transportation Committee has primary jurisdiction over 

telecommunications issues, but there is no longer a telecommunications subcommittee. At the start of the 

109th Congress, then-Chairman Ted Stevens (R-AK) ended the telecommunications subcommittee and 

moved jurisdiction over telecommunications to the full committee. 

737 S. 215 is identical to S. 2917, legislation introduced in the 109th Congress by Senators Snowe and 

Dorgan. See also Sens. Byron L. Dorgan & Olympia J. Snowe, Public Comment 14 (advocating need for 

network neutrality legislation, as well as FTC involvement in area of broadband Internet access). 

738 USC Annenberg Center, supra note 252. See also Wilkie, Tr. I at 169-70 (discussing the creation of 

these principles). According to Wilkie, these principles modify the FCC’s “four Internet freedoms to say 

that, rather than enforcing non-discrimination, that, essentially, the gist of the proposal is that consumers 

should have the choice of a net neutral package being offered to them. That is, we should establish a floor, 

a baseline level.” Id. 
148

customers should be provided with clear, understandable terms and conditions of service 

that explain how any network operator, ISP, or content provider will use their personal 

information and prioritize or otherwise control content that reaches them. Fifth, 

government policy should encourage competitive entry and technological innovation in 

broadband access markets to help achieve effective network competition and make highspeed Internet access available to the largest number of customers. 

Telecommunications Industry Association. The Telecommunications Industry 

Association (“TIA”) has proposed a series of “Broadband Internet Access Connectivity 

Principles.”739 In their view, consumers should receive meaningful information regarding 

their broadband Internet access service plans. Broadband consumers should have access 

to their choice of legal Internet content within the bandwidth limits and quality of service 

specified in their service plans. They should be able to run applications of their choice, 

within the bandwidth limits and quality of service of their plans, as long as they do not 

harm the provider’s network. Also, consumers should be permitted to attach any devices 

to their broadband Internet access connection, provided they operate within the 

bandwidth limits and quality of service of their service plans and do not harm the 

network or enable the theft of services. 

The TIA principles further provide that broadband providers should remain free to 

engage in procompetitive network management techniques to alleviate congestion, 

ameliorate capacity constraints, and enable new services, consistent with the technical 

characteristics and requirements of the particular broadband platform. Broadband 

providers should remain free to offer additional services to supplement broadband 

Internet access, including speed tiers, quality-of-service tiers, security and spam services, 

and network management services, and should be free to enter into commercially 

negotiated agreements with unaffiliated parties for the provision of such additional 

services. In turn, network operators should be able to continue to optimize network 

efficiency, enable new services, and create incentives for continued buildout to meet 

increasing capacity demands. Also, broadband providers should remain free to innovate 

in the deployment of managed services, such as packaged video programming, which 

utilize the same networks but are distinct from public Internet access services. 

Public Knowledge. Public Knowledge has outlined a set of five “Principles for an 

Open Broadband Future.”740 First, broadband networks must be open to competition 

from any entity, including municipalities. Specifically, every consumer should be able to 

choose among multiple, competing broadband networks, services, applications, and 

content providers, including municipalities. Also, government policies should be 

technology-neutral and should forbear from regulating broadband networks except where 

necessary to promote competition. Second, broadband networks must be open to the 

 

739 TELECOMMS. INDUS. ASS’N, BROADBAND INTERNET ACCESS CONNECTIVITY PRINCIPLES (2006), 

available at

http://www.tiaonline.org/policy/publications/white_papers/documents/TIABroadbandInternetAccessConne

ctivityPrinciples.pdf. See also TIA, Public Comment 56. 

740 PUBLIC KNOWLEDGE, supra note 280. 
149

attachment of any equipment the user chooses, as long as it does not harm the technical 

operation of the broadband network. Third, such networks must be open and accessible 

to consumers, applications developers, information service providers, and other networks, 

without restrictions or degradation, except for law enforcement or network management 

purposes. As corollaries, consumers have the right to access information and ideas from 

a diversity of sources and the right to disseminate their own ideas to the public in any 

manner they desire. Likewise, every broadband network should be able to interconnect 

with every other broadband network. Fourth, broadband networks should be open to the 

maximally efficient number of licensed and unlicensed wireless providers. Thus, to the 

maximum extent possible, spectrum should be allocated so as to promote private 

commercial and non-commercial uses. Similarly, to the maximum extent possible, 

spectrum licensees should be given flexible use of their spectrum to offer new services in 

response to consumer demand. In addition, unlicensed services should have the benefit 

of a presumption that they be authorized in any spectrum band as long as they do not 

cause interference with existing licensees. Fifth, broadband networks must be open, 

available, and affordable to all consumers, regardless of income, race, geographic 

location, or disability. 

Center for Democracy and Technology. The Center for Democracy and 

Technology (“CDT”) has submitted principles that call for any legislation in this area to 

preserve at least four “essential elements” that are perceived by CDT to currently 

characterize the Internet, including: (1) non-discriminatory routing without regard to the 

identities of senders and receivers, the content of packets, the services accessed, or the 

providers of such content or services; (2) the ability to create and use new content, 

applications, protocols, and devices without negotiating or even consulting with network 

operators; (3) the ability to connect to the Internet at different speeds and service levels, 

as chosen by end users; and (4) the interconnection of networks on an open basis, in the 

sense that no network operator may be denied the opportunity to interconnect.741

CDT has stated that such legislation generally should not prohibit the use of 

caching services, the blocking or filtering of harmful or illegal content, or notice-andtakedown procedures or other cooperative actions aimed at identifying and removing 

pirated material. Also, it should not preclude the prioritization of data packets based on 

traffic type, as long as such services are equally available for similar types of content and 

any charges are assessed to end users, not content and applications providers. Such 

legislation, however, should not entail full common carriage obligations or price 

regulation and should not apply to video or other so-called “non-Internet” networks, such 

as virtual private networks.742

 

741 CENTER FOR DEMOCRACY & TECHNOLOGY, supra note 419. See also Center for Democracy & 

Technology, Public Comment 7; D. Sohn, Tr. II at 223-31. 

742 According to David Sohn, Staff Counsel for the Center for Democracy and Technology, “[i]f you look 

at the AT&T merger commitment, it takes exactly this kind of approach, it excludes enterprise managed IP 

services. It excludes IP television services.” D. Sohn, Tr. II at 230. In his view: 
150

CDT has suggested that these principles be further refined and enacted into 

legislation that would be enforced by the FCC or FTC using a streamlined complaint 

process. In CDT’s view, the mere advancement of generic principles and case-by-case 

adjudication without a broader legislative framework would allow too much discretion at 

the agency level. CDT also has suggested that legislation might bar any non-complying 

service from being marketed using the terms “Internet,” “broadband,” or other similar 

language. 

Atkinson and Weiser. Robert D. Atkinson and Professor Philip J. Weiser have 

proposed a “Third Way” between what they view as overly aggressive network neutrality 

legislation that may inhibit new quality-of-service offerings and other bills that do not 

provide sufficient mechanisms for dealing with potential harms.743 First, these 

commentators suggest Congress should require broadband providers to state clearly their 

bandwidth levels, latency, and any limitations on users’ ability to access certain content 

or applications. They suggest that the FCC be charged with monitoring compliance with 

these requirements under a framework mirroring the FTC’s approach to Internet privacy. 

Further, any firm selling “broadband Internet access” would be required to make 

available to users a basic level of open, unmanaged, best-efforts access to the broader 

Internet. Such access would be expected to increase in speed along with general 

improvements in the delivery of Internet services. Network operators with market power 

not meeting this FCC-defined parameter would be prohibited from describing their 

service as “broadband.”744

 Second, Atkinson and Weiser advocate charging the FCC with responsibility for 

monitoring the use of discriminatory access arrangements to ensure they are not 

anticompetitive. The FCC would take an “antitrust-like” approach to enforcement and 

would manage all proceedings on an expedited basis using a case-by-case adjudicative 

model, rather than a broad, before-the-fact legislative approach. Under this model, the 

FCC should use Chairman Powell’s 2004 “Internet Freedoms” as a starting point for 

enforcement. All quality-of-service arrangements would have to be offered on a 

universal basis, unless a network operator could demonstrate a legitimate business 

 To use an analogy, I’ve sometimes heard in these debates people talk about the 

Postal Service and premium delivery services. Yes, by all means, a premium delivery 

service like FedEx should be allowed to exist. You shouldn’t regulate that out of 

existence. 

At the same time, there may be a very important policy objective of maintaining 

ordinary Postal Service delivery at an acceptable level of service. That, I think, is really 

what the goal ought to be here, to keep this neutral open Internet at an acceptable level of 

service, to keep that in existence even as experimentation with other networks and private 

networks, as discussed in the previous panel, even if that kind of experimentation 

proceeds. 

Id. at 226. 

743 Atkinson & Weiser, supra note 255, at 47. 

744 Id. at 55-56. 
151

justification for offering such a service on a limited or exclusive basis. As in antitrust 

enforcement, the FCC could determine certain practices to be per se illegal, while 

evaluating other practices under a rule-of-reason approach. Alternatively, if Congress 

determines that imposing antitrust-style enforcement on the FCC is not practical, it could 

assign this function to the FTC.745

 Third, Atkinson and Weiser suggest that Congress should provide investment 

incentives for additional broadband deployment because, in their view, broadband 

networks create positive externalities that generate economic and social benefits beyond 

those captured by a network operator itself. They suggest, therefore, that companies 

investing in broadband networks be allowed to expense new investments in the first year, 

instead of depreciating them over fifteen years. Additionally, the moratorium on federal, 

state, and local broadband taxes should be extended, but made contingent upon network 

operators providing a basic level of open, unmanaged, best-efforts access to the broader 

Internet, as described above.746

COMPTEL. COMPTEL has recommended several changes to existing antitrust 

law.747 First, this group suggests that Congress consider enacting a limited exception to 

the Illinois Brick748 line of precedent to grant standing for indirect-purchaser private 

litigants bringing cases against formerly regulated “dominant” firms. Second, 

COMPTEL suggests that Congress introduce legislation clarifying that dominant carriers 

for which the FCC has eliminated common carrier regulatory status no longer enjoy 

liability limitations based on the “filed rate doctrine,” to the extent that this doctrine 

presumes lawfully filed tariffs to be reasonable. Rather, if de-regulated monopoly 

carriers are engaging in anticompetitive conduct that forecloses entry, unlawfully restricts 

output, or otherwise leads to supracompetitive pricing as a result of antitrust violations, 

then the damages – which are subject to trebling – must be based on the difference 

between the supracompetitive rate and the competitive rate the carrier has foreclosed. 

Third, the Trinko749 precedent, which, in their view, tolerates aggressive exclusionary 

behavior, must be repudiated. 

Peha. Professor Jon M. Peha has suggested a “balanced policy” that would allow 

the beneficial use of discrimination, while limiting harmful uses of discrimination if and 

only if the broadband market is not “highly competitive.”750 In his view, network 

 

745 Id. at 56-58. 

746 Id. at 58-59. 

747 Comstock House Testimony, supra note 265, at 36-37. 

748 See Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977) (holding that, with certain limited exceptions, only 

direct purchasers may recover overcharges in private antitrust actions under the Clayton Act). 

749 See Verizon Communs., Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (holding 

that plaintiff’s complaint that Verizon breached a duty to share its network with competitors did not state a 

monopolization claim under Section 2 of the Sherman Act). 

750 Peha, supra note 36, at 17-18. 
152

operators should be able to charge senders of data, recipients, or both, for services, thus 

allowing for two-sided market transactions. Network operators also should be allowed to 

provide different quality-of-service levels for different classes of traffic and to offer 

proprietary content and unique services to users, provided that they do not favor their 

own content and services over those of others. 

 Unless the broadband market is highly competitive, however, a network could not 

charge more for one data stream than another if the latter requires at least as many 

resources as the former. For example, a network operator could not charge more for a 

steady 50 Kbps VoIP data stream than it does for a steady 50 Kbps gaming application 

where the quality-of-service requirements are the same for both streams. A network 

would be prohibited from charging one user, whether a sender or a receiver, a price 

higher than that charged to another user for a comparable type of service, unless the 

operator could present a justification based on a cost difference. Similarly, a network 

could not offer content or services directly through an affiliate at a data rate or quality-ofservice level that is not available to competitors at a comparable price. Likewise, a 

network could not make services available to itself or affiliates, but not to competitors. 

In addition, a network could not charge a higher price (or offer a lower quality of service) 

for data traffic that competes with a legacy, circuit-switched service than it charges for 

comparable traffic that does not compete with a legacy service. 

Under this framework, networks should be allowed to block Internet traffic that 

they reasonably believe poses a threat to security, including traffic originating from an 

attached device that is reasonably believed to be harmful to the network or its users. But 

they could not block specific content or applications, absent a reasonable belief that the 

relevant data traffic presents a security threat. A network operator also could not block 

traffic from a properly functioning device while carrying traffic from other devices 

known to be technically equivalent. An operator could not degrade traffic based solely 

on the nature of the content or application. 

Internet2. The Internet2 consortium has suggested that the best solution to the 

Internet connectivity debate is to upgrade network infrastructures to the point where they 

no longer suffer from capacity constraints or data congestion.751 The model for this 

proposal is the not-for-profit 100-1,000 Mbps Internet2 network that connects 208 

universities, 70 companies, and 51 affiliated organizations. This group wants to set a 

national goal for deploying 100 Mbps bandwidth connections (with symmetric speeds for 

uploading and downloading) to every home, business, and school in the country in five 

years and 1,000 Mbps connections in ten years. They suggest that the costs of deploying 

such high-speed lines, or upgrading existing ones, would be relatively low – once fiber 

wirelines are laid. In their view, the widespread deployment of such advanced, highspeed Internet services would obviate the need for any kind of prioritized data 

transmission.752 In addition, they suggest that the FTC, the FCC, or both should issue 

 

751 See Bachula, Tr. II at 164-73. 

752 Bachula Senate Testimony, supra note 253. According to Internet2, once basic wiring is in place, it 

costs about $150 per end user to upgrade to a 100 Mbps connection, or $30 per user over a five-year period. 
153

specific and enforceable guidelines that would require the maintenance of “open and nondiscriminatory networks.”753

DPS Project. The Dynamic Platform Standards Project for Real Network 

Neutrality (“DPS Project”) has suggested a disclosure and definitional approach to the 

issue of Internet connectivity.754 DPS Project proposes legislation that would define 

“Internet access” to mean the transmission of data packets across networks under the 

TCP/IP protocol suite in a way that is “agnostic” to the nature, source, or destination of 

any packet. Network operators advertising the provision of “Internet” service would 

have to provide such service in conformance with the above definition, regardless of 

whether other additional, non-conforming services are also provided along with that 

service. Additional, special features that analyze or identify particular applications could 

not be described as “Internet” services. Under the proposed legislation, any violation of 

such rules would be treated as a violation of the FTC Act’s prohibition of unfair or 

deceptive acts or practices. 

Sidak. Professor J. Gregory Sidak has proposed that network operators have at 

least six “fundamental rights” that should be protected.755 First, a network operator 

should be allowed to innovate on its network. Second, network operators unilaterally 

should be able to price the use of their networks in any way that does not violate antitrust 

law. Third, a network operator should be able to refuse to carry content or applications 

that present a legitimate risk to the security or performance of its network or to attached 

devices. Fourth, network operators should be allowed to prioritize the delivery of data 

packets on their networks. Fifth, they should be able to reserve capacity on their 

networks. Sixth, network operators should be able to use capacity on their networks to 

vertically integrate into the provision of content or applications. 

 By their estimates, it would cost about $250 to upgrade to a 1,000 Mbps connection. Id. at 4. See also

Thorne, Participant Presentation, at 1 (identifying Verizon Communications capital expenditures of 

approximately $45 billion during the 2004-06 period); T. Randolph Beard et al., supra note 283, at 430 

(estimating the cost of fiber-optic wireline deployment in a metropolitan area at approximately $3 million 

per mile). 

753 Bachula, Tr. II at 172. 

754 See DYNAMIC PLATFORM STANDARDS PROJECT FOR REAL NETWORK NEUTRALITY, LEGISLATIVE 

PROPOSAL: THE INTERNET PLATFORM FOR INNOVATION, http://www.dpsproject.com/legislation.html (last 

visited June 7, 2007); Dynamic Platform Standards Project, Public Comment 15. 

755 See Sidak, supra note 287, at 373-85. 
154

Felten. Finally, Professor Edward W. Felten and other commentators have 

suggested that taking a wait-and-see approach to the future development of the Internet 

might be the best option. In this view, there is not yet any simple policy solution that will 

not entail difficult line-drawing exercises or potentially create unintended consequences. 

Believing that “time is on our side,” however, a cautious, incremental approach is seen as 

a potential best solution.756

 

756 In Felten’s view: 

Readers looking here for a simple policy prescription will be disappointed. The 

network neutrality issue is more complex and subtle than most of the advocates on either 

side would have you believe. Net neutrality advocates are right to worry that ISPs can 

discriminate – and have the means and motive to do so – in ways that might be difficult 

to stop. Opponents are right to say that enforcing neutrality rules may be difficult and 

error-prone. Both sides are right to say that making the wrong decision can lead to 

unintended side-effects and hamper the Internet’s development. 

There is a good policy argument in favor of doing nothing and letting the 

situation develop further. The present situation, with the network neutrality issue on the 

table in Washington but no rules yet adopted, is in many ways ideal. ISPs, knowing that 

discriminating now would make regulation seem more necessary, are on their best 

behavior; and with no rules yet adopted we don’t have to face the difficult issues of linedrawing and enforcement. Enacting strong regulation now would risk side-effects, and 

passing toothless regulation now would remove the threat of litigation. If it is possible to 

maintain the threat of regulation while leaving the issue unresolved, time will teach us 

more about what regulation, if any, is needed. 

Felten, supra note 36, at 11-12. 
155

X. SUGGESTED GUIDING PRINCIPLES 

The FTC’s statutory mission is to protect competition and consumers by 

safeguarding and encouraging the proper operation of the free market. The Federal Trade 

Commission’s Internet Access Task Force has conducted a broad examination of the 

technical, legal, and economic issues underpinning the debate surrounding broadband 

connectivity competition policy. Based on this examination, as well as our experience 

with the operation of myriad markets throughout the economy, we identify guiding 

principles that policy makers should consider in evaluating options in the area of 

broadband Internet access. We have provided an explanation of the conduct that the 

antitrust and consumer protection laws already proscribe and a framework for analyzing 

which conduct may foster or impede competition in particular circumstances. In 

evaluating whether new proscriptions are necessary, we advise proceeding with caution 

before enacting broad, ex ante restrictions in an unsettled, dynamic environment. 

Section A of this Chapter discusses the promotion of competition in broadband 

Internet access services. Although there is disagreement as to the competitiveness of the 

broadband industry, both proponents and opponents of network neutrality regulation 

agree that more competition in this industry would benefit consumers. In Section B, we 

suggest that policy makers proceed with caution in evaluating calls for network neutrality 

regulation, based on the indeterminate effects on consumer welfare of potential conduct 

by broadband providers and concerns with regulation in the area of broadband Internet 

access. No regulation, however well-intended, is cost-free, and it may be particularly 

difficult to avoid unintended consequences here, where the conduct at which regulation 

would be directed largely has not yet occurred. In Section C, we reiterate the important 

role that continued federal agency oversight will have in this area. The FTC, for its part, 

will continue to devote substantial resources to law enforcement, consumer education, 

industry guidance, and competition advocacy in the important area of Internet access. 

A. Competition in Broadband Internet Access Services 

Over time, competition produces the best results for consumers, providing them 

the lowest prices, the highest-quality products and services, and the most choices. 

Competition forces firms to lower their costs and prices and to improve quality, service, 

convenience, and other attributes that consumers value. Competition induces firms to 

produce the types and amounts of goods and services desired by consumers. Our freemarket system fosters innovation, creativity, and entrepreneurship that are unmatched 

around the world. 

 While there is disagreement over the competitiveness of the broadband Internet 

access industry, there is evidence that it is moving in the right direction.757 Specifically, 

there is evidence at least on a national scale that: (1) consumer demand for broadband is 

growing quickly; (2) access speeds are increasing; (3) prices (particularly speed-adjusted 

or quality-adjusted prices) are falling; and (4) new entrants, deploying Wi-Fi, Wi MAX, 

 

757 See supra Chapter VI.B. 
156

and other broadband technologies, are poised to challenge the incumbent cable and 

telephone companies. Although this is merely a high-level snapshot of a dynamic, 

evolving marketplace, such evidence challenges the claims by many proponents of 

network neutrality regulation that the broadband Internet access market is a cabletelephone duopoly that will exist for the foreseeable future and that the two primary 

broadband platforms do not compete meaningfully. 

 We nonetheless recognize that what appear to be positive national trends do not 

necessarily signify vigorous competition in every local broadband market in the United 

States. In rural markets, in particular, consumers may have relatively limited options for 

obtaining broadband Internet access. This Report and the findings herein do not reflect a 

case-by-case analysis of the state of competition in each of the localities that may 

represent relevant markets under the antitrust laws. 

In any case, there appears to be substantial agreement on the part of both 

proponents and opponents of network neutrality regulation that more competition in the 

broadband Internet access area would benefit consumers. Thus, to the extent that policy 

makers are not content to wait for the market to increase competition, they should 

consider various ways of increasing competition in the provision of broadband Internet 

access. For example, several commentators have urged government action to make more 

spectrum available or its use more efficient.758 Others have identified reform of local 

franchising rules as a potential means of increasing competition.759 Some have suggested 

municipal provision of broadband Internet access as a means of introducing more 

competitors.760 Still others have proposed revisions to the federal tax laws to promote 

investment in the infrastructure necessary for broadband Internet access, including access 

at speeds considerably higher than those generally available today.761 While we take no 

position on these particular proposals, policy makers should consider pursuing ways to 

increase competition in the broadband Internet access area. To the extent that calls for 

regulation are based on concerns that competition is not sufficiently vigorous to protect 

consumers’ interests, then pursuing ways to increase that competition would seem to 

attack the potential problem directly at its source. 

 

758 See supra Chapter VI.D. 

759 See supra Chapter VI.B. 

760 See supra Chapter VI.C. Government provision of Internet access can raise competitive concerns, 

however. As FTC Staff explained in its recent report, Municipal Provision of Wireless Internet Access, the 

benefits to consumers of municipal involvement in wireless Internet access may vary depending on a 

municipality’s particular factual circumstances. Accordingly, that report provides an analytical framework 

for policy makers considering the question of whether, and to what extent, a municipality should involve 

itself in the provision of wireless Internet access. See FTC STAFF, supra note 499. 

761 See supra Chapter IX.D. 
157

B. Grounds for Proceeding with Caution 

 To date, the primary policy proposals in the area of broadband Internet access 

include imposing some form of network neutrality regulation. In evaluating such 

proposals, we recommend proceeding very cautiously. 

1. Indeterminate Consumer Welfare Effects of Potential Conduct by 

Broadband Providers 

 Policy makers should be wary of calls for network neutrality regulation simply 

because we do not know what the net effects of potential conduct by broadband providers 

will be on consumers, including, among other things, the prices that consumers may pay 

for Internet access, the quality of Internet access and other services that will be offered, 

and the choices of content and applications that may be available to consumers in the 

marketplace. Similarly, we do not know what net effects regulation to proscribe such 

conduct would have on consumers. This is the inherent difficulty in regulating based on 

concerns about conduct that has not occurred, especially in a dynamic marketplace. 

 Some proponents of network neutrality regulation have argued that vertically 

integrated broadband providers possessing market power in the provision of last-mile 

Internet access could leverage that power in ways ultimately harmful to consumers. For 

example, such providers could block competing services as the provider in the Madison 

River762 matter allegedly did or discriminate against their competitors’ content or 

applications by relegating them to the proverbial “winding dirt road.” Yet, the primary 

assumption underlying this concern (and others raised by net neutrality proponents) – that 

broadband providers have market power in the provision of last-mile access – is the 

subject of considerable debate. Absent coordination or collusion among providers, as 

long as consumers have one or more alternatives to which they can turn, it is difficult to 

imagine them accepting the blockage or elimination of content that is important to them. 

Further, broadband providers have conflicting incentives relating to blockage of 

and discrimination against data from non-affiliated providers of content and 

applications.763 While a broadband provider with market power may have an incentive to 

limit its end-user customers’ access to competing content and applications, the broadband 

provider also may have an incentive to maximize the value of its network to end users. 

Blocking or discriminating against content and applications desired by the provider’s 

customers likely would diminish the value of that network. In the abstract, it is not 

possible to know which of these incentives would prove stronger. Even assuming 

discrimination against content or applications providers took place, moreover, there 

remains the question – also unanswerable in the abstract – whether such discrimination 

would be harmful, on balance, to consumer welfare. For example, such discrimination 

may facilitate product differentiation, such as the provision of Internet access services 

 

762 See supra notes 217 and 233. 

763 See supra Chapter IV. 
158

designed specifically for certain population segments or other audiences with specialized 

preferences. 

 Data discrimination often is discussed in the context of vertical integration by 

broadband providers into the provision of content and applications. Such integration 

raises the various issues involving incentives to discriminate discussed above. Vertical 

integration, however, also provides potential benefits to competition and consumers. For 

example, the potential to earn additional profits from selling its content and applications 

to more customers likely would increase the vertically integrated firm’s incentives to 

build out its network and invest in technology to increase the types and/or amount of 

content that it can offer. 

 Further, as is the case with data discrimination, it is impossible to determine in the 

abstract whether allowing content and applications providers (or even end users) to pay 

broadband providers for prioritized data transmission will be beneficial or harmful to 

consumers.764 Such prioritization may provide benefits to broadband providers, content 

and applications providers, and end users. Prioritization may allocate resources to their 

highest-valued uses by, for example, allowing content and applications providers that 

value higher-quality transmission services, such as VoIP or online gaming providers, to 

pay broadband providers for such services. Prioritization may enable broadband 

providers to obtain income streams from content and applications providers and other 

users of broadband networks besides the broadband providers’ own customers, resulting 

in increased investment and innovation in such networks. Prioritization may aid 

innovation in applications or content, such as streaming video and other real-time 

applications, that require higher-quality transmission to operate effectively. Prioritization 

may provide a dimension for both content and applications providers and broadband 

providers to differentiate their offerings, to the benefit of competition and consumers. 

Prioritization also may lower prices for less affluent end users, whose access fees could 

be partially subsidized by prioritization revenues, much like advertising-supported e-mail 

services now provide free e-mail accounts. 

Nonetheless, proponents of network neutrality regulation have raised concerns 

regarding potential adverse effects of data prioritization. For example, it could create 

entry barriers for new or less affluent content and applications providers – that may not 

be able to afford prioritization services – to disseminate their offerings successfully, 

resulting in a diminution in innovation in content and applications. Prioritization could 

result in increased transaction costs resulting from the potential need for content and 

applications providers to negotiate with multiple broadband providers over prioritization 

arrangements. Thus, the frequently cited example of college students founding 

successful Web sites in their dorm rooms may become impossible if these students also 

would have to reach carriage arrangements with numerous broadband providers before 

they could reach end users. Prioritization also could lead to the intentional or passive 

degradation of non-prioritized data delivery over broadband networks. That is, the use of 

prioritization could create incentives for broadband providers to focus all or most of their 

 

764 See supra Chapter V. 
159

investment and innovation in the priority portions of their networks, to the detriment of 

the non-priority portions of such networks. Prioritization could enable exclusive deals 

for priority that, if combined with inadequate delivery of non-priority data, would hinder 

the traditional ability of every end user to reach every content and applications provider 

through a single Internet access agreement. As with data discrimination, we are unable to 

determine in the abstract the net effect on consumer welfare of the various forms of data 

prioritization that may be pursued in the marketplace. 

 Further reason for policy makers to proceed with caution in the area of broadband 

Internet access is the existence of several open questions that likely will be answered by 

either the operation of the current marketplace or the evolution of complicated 

technologies. These questions include, but are not limited to, the following: 

• What is the feasibility of broadband providers engaging in data 

discrimination, including the outright blockage of data from certain 

content and applications providers? 

• Would consumers be able to detect such data discrimination? 

• What would be the consumer response to such data discrimination? 

• How much demand will there be on the part of content and applications 

providers for data prioritization? 

• What is the feasibility of effective data prioritization throughout the many 

networks comprising the Internet? 

• Would allowing broadband providers to practice data prioritization 

necessarily result in the degradation of non-prioritized data delivery? 

• What Internet access speeds, including upload and download speeds, will 

consumers demand? 

• When will the capacity limitations of the networks comprising the Internet 

result in unmanageable or unacceptable levels of congestion? 

• If that point is reached, what will be the most efficient response thereto: 

data prioritization, capacity increases, a combination of these, or some as 

yet unknown technological innovation? 

The eventual answers to these questions may give policy makers key information about 

the net effects on consumer welfare arising from the conduct and business arrangements 

that network neutrality regulation would prohibit or limit. 

2. Concerns with Regulation 

 The other ground for proceeding with caution in evaluating calls for network 

neutrality regulation is the potentially adverse and unintended effects of regulation 
160

generally – whether it is enacted in the area of broadband Internet access or any other 

area. Industry-wide regulatory schemes – particularly those imposing general, one-sizefits-all restraints on business conduct – may well have adverse effects on consumer 

welfare, despite the good intentions of their proponents. Even if regulation does not have 

adverse effects on consumer welfare in the short term, it may nonetheless be welfarereducing in the long term, particularly in terms of product and service innovation. For 

example, prohibitions of certain business conduct, such as vertical integration into 

content and applications or the offering of prioritization services by broadband providers, 

may not have immediate effects on consumer welfare, but could result in a long-term 

decline in investment and innovation in broadband networks. Broadband providers that 

cannot differentiate their products or gain new revenue streams may have reduced 

incentives to upgrade their infrastructure. 

Further, broad regulatory schemes almost certainly will have unintended 

consequences, some of which may not be known until far into the future. After all, even 

the most carefully considered legislation is likely to have unforeseen effects. In the 

broadband Internet context, regulation that nominally seeks to protect innovation in 

content and applications by prohibiting broadband providers from charging for prioritized 

delivery over their networks actually could erect barriers to new content and applications 

that require higher-quality data transmission. A new entrant in the streaming video 

market, for example, might prefer to purchase a certain quality of service from broadband 

providers, rather than investing in the server capacity and other resources necessary to 

provide that level of service on its own. Once a regulatory regime is in place, moreover, 

it may be difficult or impossible to undo its effects. 

 Two aspects of the broadband Internet access industry heighten the concerns 

raised by regulation generally. First, the broadband industry is a relatively young and 

evolving one. As discussed above, there are indications that it is moving in the direction 

of more – not less – competition.765 In particular, there is evidence that new entrants 

employing wireless and other technologies are beginning to challenge the incumbent 

wireline providers (i.e., the cable and telephone companies). Second, to date we are 

unaware of any significant market failure or demonstrated consumer harm from conduct 

by broadband providers. Policy makers should be wary of enacting regulation solely to 

prevent prospective harm to consumer welfare, particularly given the indeterminate 

effects on such welfare of potential conduct by broadband providers and the law 

enforcement structures that already exist. 

 Policy makers also should consider the feasibility of undoing the effects of data 

discrimination, prioritization, and other conduct and business arrangements, about which 

network neutrality proponents raise concerns, if it is later determined that enforcement 

under current law has been inadequate and the effects on consumer welfare of such 

conduct and arrangements turn out to be on balance (or even primarily) harmful. That is, 

policy makers considering a wait-and-see approach also should consider whether 

legislative or regulatory action could effectively counteract business arrangements and 

 

765 See supra Chapter VI.B. 
161

network design decisions if the consumer harms from a non-neutral network are later 

deemed clearly to outweigh the consumer benefits. Although we take no position 

regarding the technical, operational, or commercial feasibility of reversing or changing 

course in some manner at a later date, this is a relevant consideration for policy makers 

evaluating calls for network neutrality regulation. 

C. Continued Agency Oversight 

 The federal antitrust agencies, the FTC and the Department of Justice, and the 

Federal Communications Commission have jurisdiction to address broadband Internet 

access, with each playing an important role in protecting competition and consumers in 

this area.766 These federal agencies are prepared to address issues that may arise in the 

broadband area. 

Further, as a byproduct of the ongoing debate over network neutrality, the 

agencies have a heightened awareness of the potential consumer harms from certain 

conduct by, and business arrangements involving, broadband providers. Perhaps equally 

important is the fact that many consumers are now aware of such issues. Consumers – 

particularly online consumers – have a powerful collective voice that should not be 

ignored by businesses. In the area of broadband Internet access, consumers have 

revealed a strong preference for the current open access to Internet content and 

applications. 

 The FTC has been involved in the Internet access area for over a decade and will 

continue to be involved in the evolving area of broadband access. The FTC Act is 

sufficiently flexible to allow the FTC to enforce the antitrust and consumer protection 

laws in most industries, including those, such as broadband Internet access, involving 

new and ever-changing technologies. The fundamental principles of antitrust and 

consumer protection law and economics that we have applied for years are as relevant to 

the broadband industry as they are to other industries in our economy. Another 

significant feature of the FTC Act is its grounding in ex post, fact- and market-specific 

analysis of conduct and business arrangements, rather than ex ante, industry-wide 

regulation. In other words, in enforcing the antitrust and consumer protection laws, the 

FTC generally conducts detailed, after-the-fact analyses of conduct and business 

arrangements to determine if they harm consumer welfare, rather than issuing broad 

regulatory directives. 

 The FTC will continue to devote substantial resources to maintaining competition 

and protecting consumers from deceptive or unfair acts or practices in the area of 

broadband Internet access, using a variety of tools. The FTC, for example, will continue 

to enforce the antitrust laws in evaluating conduct and business arrangements involving 

broadband access. As explained above,767 because the various conduct and business 

arrangements at issue in the broadband area have both procompetitive and 

 

766 See supra Chapters II and IX.A. 

767 See supra Chapter VII. 
162

anticompetitive potential, the FTC would carefully analyze the net effect of particular 

conduct or arrangements on consumer welfare, rather than challenge them as per se 

illegal. 

The FTC also will continue to enforce the consumer protection laws in the area of 

broadband Internet access. Such enforcement will remain crucial to fostering 

competition in the broadband area – with or without the enactment of some form of 

network neutrality regulation. Important questions involving the clear and conspicuous 

disclosure of material terms of broadband Internet access remain, particularly in the event 

that broadband providers engage in data discrimination, prioritization, or other trafficshaping practices discussed above.768

 Finally, the FTC’s Broadband Connectivity Competition Policy Workshop and 

this Report exemplify some of the diverse resources the agency may bring to bear on 

Internet access issues, in addition to specific law enforcement actions. The Workshop 

and Report reflect the agency’s interest in and commitment to developing competition 

and consumer protection policy. The agency also expends and will continue to expend 

considerable efforts at consumer education,769 industry guidance,770 and competition 

advocacy771 in the important area of Internet access. 

 

768 See supra Chapters IV, V, and VIII. 

769 See, e.g., FTC, HIDE AND GO SEEK: FINDING THE DISCLOSURES IN “FREE” INTERNET SERVICE OFFERS

(2001), available at http://www.ftc.gov/bcp/conline/pubs/alerts/freeispalrt.shtm. 

770 See, e.g., FTC, DOT COM DISCLOSURES: INFORMATION ABOUT ONLINE ADVERTISING (2000), available 

at http://www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.shtm. 

771 See, e.g., FTC STAFF, supra note 499. 
163

APPENDIX 1 – BROADBAND CONNECTIVITY COMPETITION POLICY 

WORKSHOP PARTICIPANTS 

Michael Altschul Senior Vice President and General Counsel, CTIA – The 

Wireless Association 

Gary Bachula Vice President for External Relations, Internet2 

Daniel Brenner Senior Vice President, Law and Regulatory Policy, 

National Cable & Telecommunications Association 

Tod Cohen Vice President and Deputy General Counsel, Government 

Relations, eBay 

Alan Davidson Washington Policy Counsel, Google 

Joseph Farrell Professor, University of California, Berkeley 

Harold Feld Senior Vice President, Media Access Project 

George S. Ford Chief Economist, Phoenix Center for Advanced Legal & 

Economic Public Policy Studies 

Alfred E. Kahn Professor Emeritus, Cornell University 

Jeannine Kenney Senior Policy Analyst, Consumers Union 

William Lehr Research Associate, Computer Science and Artificial 

Intelligence Laboratory, Massachusetts Institute of 

Technology 

Thomas M. Lenard Senior Fellow and Senior Vice President for Research, The 

Progress & Freedom Foundation 

Christopher Libertelli Senior Director of Governmental and Regulatory Affairs, 

Skype Limited 

Walter B. McCormick, Jr. President & CEO, United States Telecom Association 

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

Timothy J. Muris Professor, George Mason University School of Law 

Jon M. Peha Professor, Carnegie Mellon University 
164

Robert Pepper Senior Managing Director, Global Advanced Technology, 

Cisco Systems 

Christopher Putala Executive Vice President, Public Policy, EarthLink 

Gregory L. Rosston Deputy Director, Stanford Institute for Economic Policy 

Research 

John Ryan Senior Vice President and Assistant General Counsel for 

Commercial and Public Policy, Level 3 Communications 

Marius Schwartz Professor, Georgetown University 

J. Gregory Sidak Visiting Professor, Georgetown University Law Center; 

Criterion Economics 

David Sohn Staff Counsel, Center for Democracy & Technology 

Gigi B. Sohn President, Public Knowledge 

John Thorne Senior Vice President and Deputy General Counsel, 

Verizon Communications 

Barbara Tulipane President & CEO, Electronic Retailing Association 

Scott Wallsten Senior Fellow and Director, Communications Policy 

Studies, The Progress & Freedom Foundation 

Joseph W. Waz, Jr. Vice President, External Affairs and Public Policy Counsel, 

Comcast 

Philip J. Weiser Professor, University of Colorado at Boulder 

Simon Wilkie Professor, University of Southern California Law School 

Christopher Wolf Co-Chairman, Hands off the Internet 

Timothy Wu Professor, Columbia University Law School 

Ronald B. Yokubaitis Chairman, Data Foundry 

Christopher S. Yoo Professor, Vanderbilt University Law School 
165

APPENDIX 2 – GLOSSARY OF FREQUENTLY USED ACRONYMS

3G Third-Generation Wireless Communications Technology 

AOL America Online 

ARPANET Advanced Research Projects Agency Network 

BPL Broadband over Powerlines 

DARPA Defense Advanced Research Projects Agency 

DOJ Department of Justice 

DSL Digital Subscriber Line 

EU European Union 

FCC Federal Communications Commission 

FTC Federal Trade Commission 

FTP File Transfer Protocol 

HTTP Hypertext Transfer Protocol 

IPTV Internet Protocol Television 

ISP Internet Service Provider 

Kbps Kilobits Per Second 

Mbps Megabits Per Second 

NSF National Science Foundation 

NSFNET National Science Foundation Network 

NTIA National Telecommunications and Information Administration 

OECD Organization for Economic Co-operation and Development 

P2P Peer-to-Peer 

QoS Quality of Service 

SMTP Simple Mail Transfer Protocol 

TCP/IP Transmission Control Protocol / Internet Protocol suite 

TELNET TELetype NETwork 

VoIP Voice over Internet Protocol 

VPN Virtual Private Network 

The Web The World Wide Web 

Wi-Fi Wireless Fidelity 

Wi MAX Worldwide Interoperability for Microwave Access 
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