[Senate Hearing 113-845] [From the U.S. Government Publishing Office] S. Hrg. 113-845 WHY NET NEUTRALITY MATTERS: PROTECTING CONSUMERS AND COMPETITION THROUGH MEANINGFUL OPEN INTERNET RULES ======================================================================= HEARING BEFORE THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION __________ SEPTEMBER 17, 2014 __________ Serial No. J-113-73 __________ Printed for the use of the Committee on the Judiciary [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] U.S. GOVERNMENT PUBLISHING OFFICE 21-221 PDF WASHINGTON : 2017 ___________________________________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected]. COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking CHUCK SCHUMER, New York Member DICK DURBIN, Illinois ORRIN G. HATCH, Utah SHELDON WHITEHOUSE, Rhode Island JEFF SESSIONS, Alabama AMY KLOBUCHAR, Minnesota LINDSEY GRAHAM, South Carolina AL FRANKEN, Minnesota JOHN CORNYN, Texas CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas MAZIE HIRONO, Hawaii JEFF FLAKE, Arizona Kristine Lucius, Chief Counsel and Staff Director Kolan Davis, Republican Chief Counsel and Staff Director C O N T E N T S ---------- SEPTEMBER 17, 2014, 10:34 A.M. STATEMENTS OF COMMITTEE MEMBERS Page Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 2 prepared statement........................................... 215 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1 prepared statement........................................... 213 WITNESSES Witness List..................................................... 37 Burnham, Bradford, Managing Partner, Union Square Ventures, LLC, New York, New York............................................. 4 prepared statement........................................... 38 Eisenach, Jeffrey A., Ph.D., Visiting Scholar, American Enterprise Institute Center for Internet, Communications and Technology Policy, Washington, DC.............................. 11 prepared statement........................................... 69 attachment I to prepared statement........................... 76 attachment II to prepared statement.......................... 108 attachment III to prepared statement......................... 159 attachment IV to prepared statement.......................... 181 Livier, Ruth, Writer, Independent Producer, and Actress, Pacific Palisades, California.......................................... 7 prepared statement........................................... 42 McDowell, Hon. Robert M., Former Commissioner, Federal Communications Commission, and Partner, Wiley Rein LLP, Washington, DC................................................. 9 prepared statement........................................... 49 O'Connor, Nuala, President and Chief Executive Officer, Center for Democracy and Technology, Washington, DC................... 13 prepared statement........................................... 201 QUESTIONS Questions submitted to Bradford Burnham by Senator Leahy......... 218 Questions submitted to Jeffrey A. Eisenach, Ph.D., by: Senator Grassley............................................. 225 Senator Leahy................................................ 221 Senator Lee.................................................. 228 Questions submitted to Ruth Livier by Senator Leahy.............. 219 Questions submitted to Hon. Robert M. McDowell by: Senator Grassley............................................. 223 Senator Leahy................................................ 220 Senator Lee.................................................. 227 Questions submitted to Nuala O'Connor by: Senator Leahy................................................ 222 Senator Lee.................................................. 229 ANSWERS Responses of Bradford Burnham to questions submitted by Senator Leahy.......................................................... 230 Responses of Jeffrey A. Eisenach, Ph.D., to questions submitted by Senators Grassley, Leahy, and Lee........................... 243 Responses of Ruth Livier to questions submitted by Senator Leahy. 231 Responses of Hon. Robert M. McDowell to questions submitted by Senators Grassley, Leahy, and Lee.............................. 232 Responses of Nuala O'Connor to questions submitted by Senators Leahy and Lee.................................................. 250 MISCELLANEOUS SUBMISSIONS FOR THE RECORD ACS Solutions et al., letter to Hon. Penny Pritzker, Secretary, U.S. Department of Commerce, September 9, 2014................. 287 ADTRAN et al., letter to Federal Communications Commission (FCC), May 13, 2014................................................... 290 Aeronet Wireless Broadband Corp. et al., letter to Hon. Penny Pritzker, Secretary, U.S. Department of Commerce, July 30, 2014 283 Computer and Communications Industry Association (CCIA), statement...................................................... 273 Electronic Frontier Foundation, Corynne McSherry, Intellectual Property Director, statement................................... 255 Future of Music Coalition (FMC), Casey Rae, Vice President, Policy and Education, statement................................ 265 Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah, and Hon. Jim DeMint, a U.S. Senator from the State of South Carolina, Wall Street Journal, October 29, 2009, op-ed article. 300 McConnell, Hon. Mitch, a U.S. Senator from the State of Kentucky, et al., letter to Hon. Thomas Wheeler, Chairman, Federal Communications Commission, May 13, 2014........................ 294 National Association of Realtors (NAR), Steve Brown, 2014 President, September 16, 2014, letter.......................... 253 National Cable and Telecommunications Association (NCTA), Rick Chessen, Senior Vice President, Law and Regulatory Policy, May 14, 2014, letter............................................... 278 Szoka, Berin, President, TechFreedom, et al., letter to Hon. Thomas Wheeler, Chairman, Federal Communications Commission, September 15, 2014............................................. 296 ADDITIONAL SUBMISSIONS FOR THE RECORD Submissions for the record not printed due to voluminous nature, previously printed by an agency of the Federal Government, or other criteria determined by the Committee, list.............................. 302 American Enterprise Institute, Jeffrey A. Eisenach, Ph.D., economic study: http://www.aei.org/files/2012/10/17/-broadband-competition- in-the- internet-ecosystem_164734199280.pdf........................ 302 Eisenach, Jeffrey A., and Ilene Knable Gotts, ``In Search of a Competition Doctrine for Information Technology Markets: Recent Antitrust Developments in the Online Sector,'' paper: http://www.techpolicydaily.com/wp-content/uploads/2014/06/In- Search-of-a-Competition-Doctrine-for-Information- Technology-Markets- Eisenach-Gotts.pdf......................................... 302 Federal Communications Commission (FCC), Electronic Comment Filing System, September 4, 2014, online posting: http://apps.fcc.gov/ecfs/comment/view?id=6018327622.......... 302 Federal Communications Law Journal, Jeffrey A. Eisenach and Hal J. Singer, June 2013, article: http://www.fclj.org/wp-content/uploads/2013/09/65-3- Singer.pdf................................................. 302 Journal of Law and Economics, The, R.H. Coase, October 1959, article: http://www.jstor.org/stable/724927........................... 302 Social Science Research Network (SSRN), Jerry Brito et al., April 12, 2010, article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 1587058&download=yes....................................... 302 WHY NET NEUTRALITY MATTERS: PROTECTING CONSUMERS AND COMPETITION THROUGH MEANINGFUL OPEN INTERNET RULES ---------- WEDNESDAY, SEPTEMBER 17, 2014, United States Senate, Committee on the Judiciary, Washington, DC. The Committee met, pursuant to notice, at 10:34 a.m., in Room SH-216, Hart Senate Office Building, Hon. Patrick J. Leahy, presiding. Present: Senators Whitehouse, Klobuchar, Franken, Blumenthal, Hirono, Grassley, Hatch, Lee, Cruz, and Flake. OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT Chairman Leahy. Senator Grassley is on his way, we will begin with my opening statement and I will yield to him when he gets here. Senator Lee is here, Senator Whitehouse, Senator Klobuchar, Senator Franken, and Senator Hirono. I appreciate the number of people who are here. I also appreciate the almost overwhelming number of people who have emailed me or contacted me about this hearing. On Monday, the Federal Communications Commission closed the public comment period on its proposed rules to protect an open Internet. I was not surprised by the number of emails and calls I got in my office because the FCC got 3.7 million--Americans made their voices heard. The issue is critical to consumers and businesses. An overwhelming number of the comments called on the FCC to enact meaningful rules that will protect consumers and preserve competition online. I should note I agree, and I believe the FCC should heed their call. This is the second hearing the Judiciary Committee has convened on this issue. The first hearing, which I chaired in Vermont this summer, was an important opportunity to hear voices outside of the Beltway. Vermont-based small businesses now have a reach they only dreamed of thanks to the transforming power of the Internet. For the Vermont Country Store--it has long operated two retail outlets and a mail order business, the Internet now accounts for a remarkable 40 percent of its business, one third of its employees and they hire several hundred people. Logic Supply is based entirely online and sells industrial computers to consumers around the world. They both were very honest and said they have reached a point and size that they could pay extra to jump over other people, but they do not want it to be that way. They said they never would have been able to start in the first place had they had to face that kind of obstacle. Their testimony was simple, keep the Internet an open playing field for small businesses so that they can launch and thrive. Cabot Orton from the Vermont Country Store said, ``All the small business community asks is simply to preserve and protect Internet commerce as it exists today, which has served all businesses remarkably well.'' He could not be more right. Martha Reid, the Vermont State Librarian, testified about the important role that libraries play in communities throughout the country, particularly those in underserved areas. She said, ``All Americans, including the most disenfranchised citizens who would have no way to access the Internet without the library, need to be able to use Internet resources equally.'' So this testimony and the testimony we will hear today will underscore the importance of why net neutrality matters. It matters for our economic growth and competitiveness. I believe the Internet is an equalizer. It can help break a lot of cycles of unemployment and poverty. It matters because the online world is the ultimate tool for free expression and democracy--a tool so powerful that it has helped topple totalitarian governments. Think about that. I mean this is something even a few years ago, none of us could even imagine. If you have the Internet become a two-tiered system of ``haves'' and ``have- nots,'' controlled by a small number of corporate gatekeepers, it destroys everything that has made it one of the greatest innovations, certainly in history. The FCC must act in a meaningful way to protect its openness. Meaningful rules would stop so-called ``paid prioritization'' deals that would allow large corporations to drown out smaller competitors. I introduced legislation with Congresswoman Doris Matsui of California that would require the FCC to develop rules to stop these deals. Regardless of whether our bill passes or not, the FCC should act to block this kind of behavior. You have to have rules that go beyond the antitrust laws, which play an important role as a backstop but alone are not enough to promote and preserve free speech and innovation online. The FCC's action will determine whether the Internet as we know it stays open, vibrant, and competitive, or whether it is going to become a place where only the most powerful have a say. I know the outcome the people in Vermont want. I thank the witnesses for coming today on Constitution Day. We have extra copies if anybody wants it. Before I start, one of my friends of decades in the U.S. Senate, Senator Grassley of Iowa--today is his birthday. So let us all wish him a happy birthday. Senator Grassley. Thank you. Chairman Leahy. That faked you out; did it not? OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE OF IOWA Senator Grassley. Yes. Thank you all. Thanks to everybody in the audience who is here. Most importantly, the witnesses who have prepared for this and our experts in this area. It is very important that you have a hearing like this, I think a complex topic, and I am glad the committee can hear from all sides of the debate. I believe that many, if not all of us, share similar goals with respect to the Internet. We all want the Internet to grow. We want it to prosper. We all want faster and cheaper Internet access. We all want more deployment of broadband technologies, particularly the areas that remain without access. We all want more innovations and new avenues by which we can access that information. We all want consumers to have more choice and options. The FCC is in the process of considering whether to adopt rules that would regulate the Internet. Chairman Wheeler claims that there is not enough competition in the highspeed broadband marketplace. There are some that dispute that. Rather, these people say that we have competitive dynamic Internet right now and the push for new regulations is a solution in search of a problem. Is the Internet really broken? Broadband and Internet technologies are advancing every day. New products are constantly entering the market. Overall, broadband deployment and speeds, both wired and wireless, are estimated to reach 98 percent of the American households with broadband speeds of 10 megabytes or faster. 82 percent of those households have access to broadband speeds of 50 megabytes or faster. The overall broadband industry--cable, telco, satellite and wireless--has invested over $1.2 trillion in infrastructure, $60 billion a year recently. Further, it is estimated that broadband speeds double every 2 to 3 years. So many contend that the FCC and others are just speculating about future harms and there is no need to deviate from the current policies that have generated Internet phenomenal growth. Morever, many--including this Senator--are highly skeptical about the prospects of expansive FCC regulation over every aspect of the Internet. The Internet has been successful precisely because of a hands-off approach. I note that this policy was first implemented under President Clinton. The lack of government intervention has allowed competition to flourish beyond wildest imaginations. We all want more deployment of technology and infrastructure. In fact, I would like to see more broadband growth and options take place in rural America where I live and where the Chairman proudly says that he resides. However, it is more likely that we will see improvements in this area as a result of innovation and investment and not more regulation. Because of the fast changing Internet market, rules and regulations could just end up impeding the development and adoption of new technologies and services. In fact, they could threaten investment in network upgrades, generate legal and marketplace uncertainty, and ultimately cost jobs, harming the economy. It is doubtful that creating an expansive regulatory regime will increase broadband deployments, spur innovation and ensure better quality services and consumer satisfaction. Supporters of net neutrality do contend that new rules will restore Internet protections and ensure the vitality of the Internet. If anything, I am concerned that the imposition of such regulations and in particular, expansion of 80 year-old rules designed to regulate old telephone monopolies under Title II might have the exact opposite effect. There are legitimate concerns about making sure Internet competition and consumers are protected from bad actors. I know about them and hear about them quite often. No I do not support monopolistic, anti-competitive or predatory practices in the Internet marketplace or anywhere for that matter, but rather than allow the FCC to impose regulations on an industry that has been so successful under a hands-off regime, antitrust and consumer protection laws may provide a better option to ensure consumers and businesses are not harmed by anti-competitive conduct in the modern Internet ecosphere. I have been a strong supporter of vigorous enforcement of antitrust laws by the Justice Department and the Federal Trade Commission to ensure a fair playing field in many sectors of our economy--just recently got somewhat of a modification in the meat-packing industry of such a merger to make sure that that would take place. So you know that I am active in the enforcement of the antitrust laws. I hope that these people, the Federal Trade Commission and the Justice Department, will be paying close attention to this market as well. So in conclusion, because the Internet is so important to consumers and to our economy, we should proceed with caution. No one wants to undermine the Internet. It is a complex policy debate and I look forward to today's testimony. And who knows? You could change my mind. Chairman Leahy. It has been known to happen. Senator Grassley. Not often enough. Chairman Leahy. Not often enough. [Laughter.] Chairman Leahy. I was showing some of you the picture in rural Vermont where I live and the Senator from Iowa has a similar picture of his home in rural Iowa where he lives. An open Internet in a rural area is critical. It is similar to what my grandparents would tell me about when--in Vermont--they got rural electricity, rural telephone, the difference it made. It is something we all take for granted today. Our first witness is Brad Burnham. He is a cofounder and managing partner of Union Square Ventures, a New York based venture capital firm. He has invested in companies like Twitter, Etsy and Kickstarter. Obviously, you know where to invest. He previously worked at AT&T in a variety of sales, marketing and business development roles. He also worked at AT&T Ventures, the venture capital group. Mr. Burnham, please go ahead. STATEMENT OF BRADFORD BURNHAM, MANAGING PARTNER, UNION SQUARE VENTURES, LLC, NEW YORK, NEW YORK Mr. Burnham. Thank you, Senator Leahy for the opportunity. As you said, my perspective has been shaped by a career spent on both sides of the issue, first as a telecommunications executive at AT&T and a partner at AT&T Ventures and then later as a founding partner of Union Square Ventures. I believe we are at a crossroads. The rules the FCC is now considering will shape the Internet ecosystem for many years to come and could have a profound effect on our economy, our place in the world and ultimately on the nature of our society. Almost everyone has benefited from the phenomenal innovation enabled by the Internet, but few of us have stopped to think about how all of this happened. The Internet we know is the direct result of two key characteristics. First, the Internet separates applications from infrastructure, making it possible to create a networked application without knowing anything about the underlying network. Second, every applications is immediately available to every consumer. These two characteristics radically lowered the cost of building and distributing Internet applications, opening the market to a much larger and more diverse pool of creators. For the first time, people without money, connections, or corporate backing could create an application and reach a global audience. Facebook was created in a dorm room. Foursquare spent $25,000 to reach their first 100,000 users. These companies and thousands more started from scratch and grew to reach global audiences. They have since gone on to empower hundreds of millions of others--independent craftspeople setting up shop on Etsy, filmmakers raising millions of dollars on Kickstarter, and journalists reaching a global audience on Twitter. This incredible explosion of innovation happened because it became so cheap to create and distribute an application on the Internet that innovators no longer required permission from a boss, a network operator, or an investor to launch a business. If you could imagine an application like Instagram, you could build it yourself and get it into the hands of thousands or millions of consumers almost overnight. Later, once you had a large audience, you could approach investors from a position of strength to raise money to grow your business. This is the model of innovation that powered the growth of the Internet, and all of this is about to change. Until recently, Internet access providers could not tell if you were watching Netflix, playing Angry Birds, or posting on Facebook. By default, access to the Internet was open. They have now deployed technology that allows them to see what services you are using. This will make it possible for the cable and telephone companies we use to get to the Internet to charge application developers for faster delivery of packets, slow traffic they decide is less important and even block traffic altogether. Even as Internet access providers increase their ability to treat applications differently, the Internet has remained a relatively level playing field because of a combination of FCC enforcement actions and Comcast's acceptance of net neutrality principles as a condition of their merger with NBC. Today, those agreements are nearing expiration, and the FCC's ability to enforce open Internet principles has been sharply curtailed by the DC Circuit Court's decision in the Verizon case. Unfortunately, the FCC, in search of a compromise, is not proposing to reclassify Internet access. Instead, they are proposing rules that would explicitly allow cable and telephone companies to treat Internet applications differently for a variety of business and network management reasons. The combination of access provider's new technical abilities and the FCC's proposed rules will dramatically increase the cost of creating and distributing Internet applications. Applications developers will have to consider the network management strategies and even the business interests of cable and telephone companies when they design their applications. They will also have to change the way they approach investors. Every web application developer knows speed is a feature. They all work to shave milliseconds off the time it takes to load a page. Start-ups will need to raise money up front to buy access to the fast lane to succeed, making it impossible to launch first as Tumbler and Foursquare did and then raise money later. No new application will be created in a dorm room. The applications like video and voice that compete with cable and telephone companies will find it especially hard to raise money. It may seem like I am overstating my case, but ask yourself how comfortable would you be investing in a company creating a new air conditioner if the company that delivered power to that device could single it out and throttle its power during busy periods while delivering full power to their own air conditioners. What if the power company zero-rated their air conditioners, powering them for free? It seems obvious that allowing electric utilities to discriminate between different applications--technically or financially--would distort the market for applications. The companies that provide access to the Internet are asking to be able to do just these things. Lobbyists for cable and telephone companies like to jump on this analogy to suggest that advocates for the open Internet are fuzzy headed liberals who want the Internet regulated as a public utility. This is a cynical, but effective misdirection. I am a capitalist. I believe in markets. If anything, like many investors, I lean libertarian. I am not suggesting the Internet should be regulated. I am suggesting the telecommunications networks we use to get to the Internet not be allowed to exploit that bottleneck position to distort the market for Internet applications. This is not some dangerous new government intervention into a free market. We have always recognized that telecommunications services were essential services because they are the connective tissue of our entire economy. In fact, until 2004, there was no question that Internet access was a telecommunications service. It was only then that cable companies convinced the FCC to treat Internet access as an information service. That was a fiction then, and it is still a fiction. How many of us use our cable or telephone company for anything other than access to the Internet? The vast majority of applications we use come from independent developers. Many were created on a shoestring budget in the last couple of years. I understand why cable and telephone companies would like to change that. I understand why it is in their business interests to leverage their ability to control access to consumers to advantage their own applications or to get paid to advantage other providers' applications. I do not understand why anyone other than the access providers or the shareholders of the access providers would think this a good idea. There is a way to preserve the key characteristics that enabled the emergence of the applications on the Internet. It is possible to keep the cost of developing and distributing Internet application within the reach of anyone with a computer and a little programming knowledge. All we have to do is admit what we all know, that access to the Internet is an essential services. Classify that service as a telecommunication service and then immediately forbear most of the regulatory overhead of the current telecommunications regulation. This would give the FCC sound legal authority to adopt the rules we need to protect innovation and investment on the Internet--rules against blocking? rules against prohibiting application-specific discrimination and rules banning access fees. This simple, clear, solution is the lightest weight approach possible. Not only is it not overbearing government regulation, it is the only way to prevent the distortion of the market for Internet applications which would ultimately require much more heavy- handed intervention. Chairman Leahy. Thank you very much, Mr. Burnham. Incidently, everybody's statement will be placed in the record in full. We are going to have to try to keep closer to our time, only because I know we are going to have votes on the floor and we will be losing Members when that happens. [The prepared statement of Bradford Burnham appears as a submission for the record.] Chairman Leahy. Ruth Livier is writer, independent producer and actress. She created the award-winning bilingual web series, Ylse, and she is the first member of the Writers Guild of America West to join that union solely for work in new media. Please go ahead. STATEMENT OF RUTH LIVIER, WRITER, INDEPENDENT PRODUCER, AND ACTRESS, PACIFIC PALISADES, CALIFORNIA Ms. Livier. Thank you, Chairman Leahy. I am here as a Union actress and as the first person to join the Writers Guild of America West via my work in digital Media to share about how net neutrality changed my life. Minority communities have historically lacked equitable and balanced representation in traditional media. UCLA's Dr. Darnell Hunt, a media diversity expert, testified that business as usual in the industry is wholly inadequate for addressing the stagnation in Hollywood diversity. A new paradigm is Needed that goes beyond symbolic pronouncements and token gestures. This is where net neutrality, or the open Internet comes in. As an American Latina, I got tired of seeing the disproportionate amount of negative stereotypes about my community in traditional media. So, in 2000, I wrote Ylse as a TV pilot. It is a bicultural dramedy about a modern Latina. At a conference designed to nurture Latino talent, I approached an executive for advice who said, ``Who are you for anyone to produce your show?'' Others asked, ``Who's going to watch this?'' Their comments were not based on my writing. They had not read a single word. Their immediate objections were based entirely on the concept of a Latina-driven show written by someone with no track record. Who was I to think that anyone would take me seriously? And how was I supposed to prove there was a market for my content? There was no way in so, I filed the script away. Then, years later, everything changed. Technology advanced. Camera equipment was no longer cost prohibitive. The Internet suddenly put worldwide distribution at our fingertips. It all seemed too good to be true, but, it was. And it changed everything. We independent artists suddenly had unprecedented access to create, produce and distribute our content. In this exciting new frontier, anyone, regardless of ethnicity or socio-economic standing, could finally tell their stories from our points of view without getting discouraged, derailed or having our visions diluted by corporate gatekeepers. So in 2008, I took that old script and reconceived it into the award-winning web series, Ylse.net. Our global audience was even broader than expected. Our indie series provided jobs for a diverse work force in front of and behind cameras. Our minority directors earned points toward becoming members of the Directors Guild of America and I earned points toward becoming a Writers Guild of America member via digital Media. This meant that the open Internet was a viable alternative way to build a career and diversify the talent pool of professional writers. It also meant that programming on the web was not up to the same few gatekeepers who controlled traditional media where, by all accounts, by every study, minorities are still under- represented in the writers' rooms, Executive positions, and in front of cameras. And Latinos are the most under-represented relative to our share of the US population. But, with an open Internet, low-budgets and no connections does not mean there was no way in. Never again could we be disregarded by anyone who essentially asks, ``Who are you to have your story be told?'' We all deserve to have our stories told. We all deserve to be heard, to be acknowledged, and to not have to sit in the shadows until someone else decides that our lives are worthy of being reflected in the media and to have to wait for someone else to get it done. We could now take the reigns in our hands and take responsibility for our own destinies. The open Internet has given the rest of us an opportunity to improve our crafts, provide jobs and a creative outlet for a more diverse work force, define ourselves by creating more varied, complex, positive and balanced portrayals of our demos. It has given us instant access to information and reputable data to prove our markets and connect with our global audiences. It has empowered and motivated historically marginalized communities to take the reigns in our own hands and create content, knowing there is a distribution outlet for it. This communication platform must not go the way of traditional media, since through it diverse voices can finally partake in the national conversation at all levels. But the same companies that distribute traditional media control Internet service and they are advancing an agenda of unenforceable rules that would allow them to be the gatekeepers and decide what content is available online and on what terms. We cannot allow this to happen. That is why the FCC must institute strong rules that ban unjust and unreasonable discrimination by Internet service providers. I join with the millions who have commented on the FCC's proposed rules to call on the Commission to reclassify Internet service as a telecommunications service, that it may, once and for all, permanently protect Internet openness. Make no mistake, this is a civil rights issue and it is my hope that for future generations of minority and low-income youth having a platform where they can express themselves on an equal- playing field will be nothing out of the ordinary because for us it has been nothing short of revolutionary. Thank you. Chairman Leahy. Thank you very much. I do appreciate that. [The prepared statement of Ruth Livier appears as a submission for the record.] Chairman Leahy. Our next witness is Robert McDowell who served as a member of the Federal Communications Commission from 2006 to 2013. Last week he joined the law firm Wiley Rein as a partner. Prior to serving at the FCC, Mr. McDowell worked for 10 years at Comptel. It is an association of competitive communication service providers. Please go ahead. STATEMENT OF HON. ROBERT M. MCDOWELL, FORMER COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION, AND PARTNER, WILEY REIN LLP, WASHINGTON, DC Mr. McDowell. Thank you, Mr. Chairman, Ranking Member Grassley and all Members of the Committee. It is an honor to be here before you today and thank you for pointing out the resume. I will cut that out of my testimony right now. I did start at Wiley Rein just last week. Nonetheless, the opinions I will give today are strictly my own and not those of any clients of Wiley Rein. I have to say that to make sure I have a job when I get back to the office later this afternoon. As was the case during my 7 years on the FCC, my hope is that the Internet remains open and freedom-enhancing as it has been since its inception, since it was privatized in the mid- 1990s. As the Net migrated further away from government control, it grew beautifully, growing from just under 90 thousand users in the late 1980s to approximately 3 billion globally today. Its success as the fastest growing disruptive technology in human history was the direct result of the Clinton Administration's bipartisan policy to keep the government's hands, largely, off of the Internet sector. The Clinton Administration was expressly vigilant about resisting attempts to regulate the Net like an old phone monopoly, as some net neutrality proponents desire today. In short, the Internet is the greatest deregulatory success story of all time. While serving on the FCC, I saw many, many different iterations of the net neutrality debate. Without a doubt, the definition of the term ``net neutrality'' keeps morphing by the day. Years ago, new rules were offered up, ostensively, to prevent Internet service providers from blocking or degrading the content and applications consumers seek to use. Since then, the term has become a sort of Rorschach inkblot to mean anything anyone can envision regarding the Internet to benefit their agenda and their interests. For instance, net neutrality has evolved from being about the last mile ISPs to the middle mile. And for the first time this year, it has grown to include ideas for regulation of the Internet backbone. The FCC's record even contains comments calling for the Commission to have general regulatory over the Internet, including not only networks like those built by cable and phone companies, but content and application providers at the so-called ``edge'' as well. At the end of the day, some are attempting to use public policy to essentially regulate their business rivals. I have opposed new rules for many reasons, including, but not limited to, these five: (1) nothing is broken in the Internet access market that needs fixing; (2) no government agency has conducted a bona fide, peer-reviewed market study that has diagnosed any alleged systemic illness; (3) if systemic market failure were to come to light, ample laws already exist to remedy the problem, while current laws provide a deterrent against anti-competitive behavior; (4) retrofitting Title II of an 80-year old statute designed for the now-extent dinosaur phone monopolies of the early 20th century would be devastating to the entire Internet ecosphere and should not be held out as America's cutting edge 21st century tech policy for the world to emulate; and (5) expansion of the government's reach into the operations of the Net is providing cover and encouragement to regimes such as those in China, Iran, and Russia to push for multi-lateral, intergovernmental, or as Vladimir Putin said 3 years ago, ``international control of the Internet.'' At this critical crossroads, two disturbing trends are emerging at the FCC. The first is to subject the Internet to antiquated phone monopoly regulations known as Title II. The second is to suffocate the competitive, dynamic, vibrant and world-leading wireless industry with new and unnecessary rules. Some technology companies that are pushing for classification of Internet access as a telecommunication service under Title II should be careful what they wish for. This section of the Communications Act is not only antiquated, but it is particularly powerful, prescriptive, far- reaching and it has over 1000 requirements. As market forces cause the technical architecture of tech and telecom--as we used to call them--companies to converge, companies that today are calling for the regulation of their rivals and think they will not get swept up in Title II regulation themselves could wake up 1 day having to live under its mandates. As a technical matter and business matter, transmission services and information services are quickly becoming indistinguishable. It would be impossible to parse the difference between broadband service providers and other tech companies that combine transmission with information processing or storage such as content delivery networks or E-reader services. Accordingly, across the globe, content and application companies are falling under the purview of more and more regulations and court orders. The FCC has the potential to stoke a contagion of international Internet regulation. This scenario becomes even more nettlesome and discouraging when it comes to wireless broadband. Since its inception, American wireless companies have spent nearly $400 billion on infrastructure. Investment grew more than 40 percent between 2009 and 2013, and may add up to $1.2 trillion in new economic activity by 2017. Over 90 percent of Americans have a choice of four mobile broadband providers. Furthermore, America leads the world in 4G build-out and adoption. The wireless market is clearly working and consumers are benefiting from it like no other time in human history. Most importantly, though, wireless is different. As a matter of physics, wireless networks operate far differently from fiber or coaxial cable and require unique management. Subjecting wireless to new, unnecessary and one-size-fits-all rules will inject uncertainty into a thriving marketplace. Such government action could undermine American global competitiveness as the mobile Internet of everything comes over the horizon to change our world. Brace yourselves, it is coming. In conclusion, whether creating new rules or foisting antiquated and obsolete laws on new technologies, the end result would be unnecessary and counterproductive while creating uncertainty and unintended consequences. A better path if we all share the same goal of freedom and choice and openness on the Internet, would be to rely on time-tested anti- trust and consumer protection laws that have helped make the American economy the strongest and most innovative in the world. Thank you for the opportunity to testify today and I look forward to your questions. Chairman Leahy. Thank you very much. [The prepared statement of Hon. Robert M. McDowell appears as a submission for the record.] Chairman Leahy. Dr. Jeffrey Eisenach is a visiting scholar at the American Enterprise Institute. He directs the Center for Internet, Communications and Technology Policy. He serves as executive editor of Tech Policy Daily.com. He writes on a wide range of issues, including industrial organization, communications policy, the Internet, government regulations, labor economics, and public finance. In his spare time, he comes and testifies here before the Congress. Go ahead, Doctor. STATEMENT OF JEFFREY A. EISENACH, PH.D., VISITING SCHOLAR, AMERICAN ENTERPRISE INSTITUTE CENTER FOR INTERNET, COMMUNICATIONS AND TECHNOLOGY POLICY, WASHINGTON, DC Mr. Eisenach. Jack of all trades, master of none, perhaps. Thank you for your introduction. Chairman Leahy, Ranking Member Grassley, and Members of the Committee, thank you for the opportunity to appear before you to present my views on net neutrality regulation. I do want to say that while I am here in my capacity as a visiting scholar at the American Enterprise Institute, the views I express are my own and should not be contributed to any of the organizations with which I am affiliated. My testimony today advances three main points. First, net neutrality would not improve consumer welfare or protect the public interest. Rather, it is best understood as an effort by one set of private interests to enrich itself by using the power of the state to obtain free services from another, a classic example of what economists term ``rent-seeking.'' Second, the potential costs of net neutrality regulation are both sweeping and severe, and extend far beyond a simple transfer of wealth from one group to another. Third, legitimate policy concerns can be addressed through existing antitrust and consumer protection laws. To begin, let us be clear what we mean by net neutrality regulation. The rules favored by net neutrality advocates would ban or restrict payments from one type of business, edge providers, to another type of business, broadband ISPS. Now it is easy to see why edge providers would lobby for such rules, but difficult to understand how they would benefit consumers or the economy generally. Net neutrality advocates offer a variety of justifications starting with the idea that broadband ISPs have monopoly power. But the monopoly argument has several fatal flaws. First, as the FCC has repeatedly noted, broadband ISPs are investing billions of dollars to upgrade their networks, prices are falling at a rapid pace and broadband speeds are increasing-- Senator Leahy, as I think you mentioned--at 30 percent or more every year. That sort of performance is not consistent with the ``cozy duopoly'' theory advanced by net neutrality advocates. Indeed, the broadband market is less concentrated than other Internet markets like search engines, social networks, and personal computer operating systems. Another variant of the market power argument suggests that while big, established edge providers might be able to fend for themselves against the ISPs, we need to look out for the little guys, the new entrants who may be strangled in the crib as a result of discriminatory access fees. But what no one can explain, however, is why ISPs would want to discriminate against start-up edge providers which pose no competitive threat and which create the applications and content that draw consumers to subscribe to the broadband in the first place. Indeed, historically, they have not done so. The FCC's case for net neutrality regulation is mostly not based on concerns about monopoly power. Instead, its main theory is that in the two-sided market in which broadband ISPs operate--with edge providers on one side and consumers on the other--edge providers generate so much innovation that they deserve to be subsidized by consumers through a rule that forces consumers to pay 100 percent of the cost of the network while edge providers pay zero. Now, this is a fine theory, but there is not a scintilla of empirical evidence to support it. Finally, some argue net neutrality regulations are needed to protect freedom of speech. There are numerous problems with this argument as well, not the least of which is that giving Netflix the right to distribute ``Orange Is the New Black'' over Comcast broadband network for free, has nothing to do with protecting political speech or dissenting views. When these erroneous arguments are stripped away, what is left is the obvious--edge providers big and small and those who fund them and profit from their success have a powerful economic interest in getting the government to guarantee them free access to the ISP's networks. Occam's razor applies, the simplest explanation tends to be the correct one and net neutrality is no exception. Now if all that were at issue here were a transfer of wealth from consumers and ISPs to edge providers and venture capitalists, that would be bad enough. But much more is at risk. The regulations being considered by the FCC, especially Title II, would replace the current dynamic pragmatic business and engineering approach to operating the Internet with a static, bureaucratic, politicized regulatory regime. Ironically, common carrier regulation would not prevent price discrimination, but instead can actually require that rates vary across different types of services and customers just as postal rates do today. Under a Title II regime, the FCC could easily find itself overseeing rate proceedings that look a lot like the perennial scrum between first, second and third class mailers over who will pay how much for junk mail, magazines, and so forth. That is not the future of the Internet any of us want to see. Finally, adoption of net neutrality regulation would harm the cause of Internet freedom worldwide. By embracing the idea of state-control of the Internet, the adoption of net neutrality rules in the U.S. would legitimize the efforts of tyrants everywhere to impose far-more repressive forms of statist intervention. To conclude, it is true that the economic characteristics of high-tech markets throughout the Internet ecosystem result in many firms having a form of market power and that such market power creates the potential for anti-competitive acts. But these characteristics are not unique to broadband markets or broadband ISPs and they cannot justify discriminatory regulation. The appropriate remedy is vigilant, nondiscriminatory enforcement of the anti-trust laws. Mr. Chairman and Members of the Committee, this completes my testimony and I look forward to answering any questions. Chairman Leahy. Thank you very much. [The prepared statement of Jeffrey A. Eisenach, Ph.D., appears as a submission for the record.] Chairman Leahy. Our next witness, the last one, Ms. Nuala O'Connor. She is the president and CEO for the Center for Democracy and Technology, and an internationally recognized expert in Internet and technology policy. Prior to joining CDT, she held a number of positions in the public and private sector, including as the first Chief Privacy Officer at the Department of Homeland Security, senior positions at General Electric and Amazon.com. She was born in Belfast, Northern Ireland. And I--with a certain amount of pride--mention she is a graduate of Georgetown University Law Center many, many, many years after I graduated from there. Please go ahead. STATEMENT OF NUALA O'CONNOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CENTER FOR DEMOCRACY AND TECHNOLOGY, WASHINGTON, DC Ms. O'Connor. Thank you, Chairman Leahy, Senator Grassley, distinguished Members of the Committee, my esteemed colleagues on the panel--I thank you. I am honored to be here today to represent the Center for Democracy and Technology. For over 20 years, CDT has worked to promote and sustain public policy that protect a free and open Internet. Above all, we are dedicated to advancing the individual's interest in a digital world that supports free expression, freedom of association, personal privacy, and innovation. Both the technology and the policy architectures of the Internet must support these individual rights and freedoms while also fostering innovation and the free flow of information--not only within the United States, but around the world. The Internet, at just over two decades old, is still in its infancy. Sound technical and policy choices have brought about an Internet that has supported robust expression, creativity and innovation. While it is an appropriate time to strengthen the rules governing our rights in the digital world, we must be thoughtful about the consequences. We must seek to protect an individual's profound need to fully engage in the digital world as speakers, as creators, as recipients of rich and diverse ideas at reasonable costs and effective speeds. We must remain dedicated to growth and innovation that supports these goals in both public and private policies. The Center for Democracy and Technology strongly supports the concept of net neutrality. We believe that the Internet is an enabler of knowledge, of community, and of Democracy around the world. We encourage the FCC to take decisive action to establish clear and strong rules that will create a level playing field for consumers. We seek new rules that are undergirded by principles of fairness and Internet openness and we believe that all options should be on the table for the FCC to consider. When the FCC's open Internet rules were adopted in 2010, there was, in fact, even far less agreement on net neutrality than there is today. Most now agree that we need strong, open Internet rules that provide clarity for consumers and for businesses alike. Ultimately, strong rules should make it clear that the open and free nature of the Internet cannot and would not be changed. We advocate for a principled and a pragmatic approach to the new rules with the following principles guiding any decision: (1) there must be no blocking, no censorship allowed; (2) we must have transparency about the services and the practices offered; (3) there should be low barriers to entry to the market on the Internet not only for individuals, but for start-up companies as well, which means we must have baseline nondiscriminatory rules; (4) we must encourage open technical standards while still allowing for reasonable network management. It is through the lens of these principles that we should consider all of the options on the table and be open to new ones that we have not even considered yet. In our comments to the FCC and our written testimony for today's hearing record, CDT has provided a detailed examination of the pros and cons of a number of the authorities on which the FCC could base its oversight, including both Title II and Section 706. We also explored a number of hybrid proposals that had been suggested. While all of these are real options, we remain concerned about the limitations inherent in the structure and enforcement of any of these solutions and the challenges to speedy and effective implementation. Over 3 million comments have been submitted to the FCC in the course of this rulemaking process. The vast majority of which call for strong rules that protect and preserve an open Internet. While the details of these comments vary, citizens have weighed in on this issue as never before, largely through online filings and emails showing the very nature of the Internet as a vehicle for political speech and openness. Many of these comments call for Title II reclassification and all agree that the Internet is a valuable resource and a platform and essential to our daily lives. While there are some procedural concerns and hurdles that Title II must overcome, it nevertheless remains a very significant option for the FCC to consider. Other options are also possible. A number of companies have called for hybrid proposals involving Title II applied to edge providers and Section 706 to end users. Others have suggested that prioritization might be acceptable if it is a choice made by the individual end user herself. All of these proposals reflect thought and effort and creativity and deserve the time and attention of the FCC in crafting a new and innovative policy framework, one that matches the speed and the innovation and the impact of the Internet on our economy, our institutions, and our private lives. The Center for Technology and Democracy believes that any regulatory framework adopted by the Federal Communications Commission must promote access, free expression, and the civil rights that will enable the greatest number of individuals to fully engage in the digital world. Whatever path the FCC chooses to take, it must act swiftly to create policy certainty that protects the individual and promotes the future growth and innovation. Thank you. Chairman Leahy. Thank you very much. [The prepared statement of Nuala O'Connor appears as a submission for the record.] Chairman Leahy. Let me ask a few questions here and then yield to Senator Grassley. I have to go back to the floor. I am going to ask Senator Hirono to take the gavel after that. Mr. Burnham, when you talked about why a free and open Internet is crucial for the businesses that are flourishing online--others have raised concerns that if you have strong net neutrality protection, it is going to come at the cost of investment in broadband networks. You worked at a large telecommunications provider. You have seen what happens. How do you respond to the concerns that net neutrality will come at the cost of investment in broadband networks? Mr. Burnham. First of all, I think that all of us would like to see more investment, particularly anyone who lives in any sort of rural community would like to see a lot more investment in broadband capacity. I think that the important thing to remember is that nobody I know in the community that advocates strong network neutrality rules would object to any provider of access to the Internet charging whatever they felt they needed to charge in order to be able to build out the network. I think consumers would make that trade. They would pay more for more speed. The problem with allowing access providers to sort of vertically integrate up into the applications layer and extract new profits from the applications layer in order to fund a build-out is that it actually perverts the incentives. If they are going to create fast lanes, the incentive is to actually have the rest of the Internet be fairly slow to create a market for their fast lanes. So I think that in order to see investment, we need to separate the infrastructure of the Internet, the actual wires, from the applications layer and we need to manage them separately and regulate them separately. So I do think that it is absolutely possible to see investment in the network and investment on the network without having this vertical integration. Chairman Leahy. Thank you. Ms. Livier, we have had a lot of hearings on this. I was struck by the fact that you are the first one who has spoken of it as a civil rights issue. I am going to ask you the same question I asked a number of businesses and others in Vermont when I had my hearing. Could you have launched your own series if the Internet had been operating under fast lanes and slow lanes? Ms. Livier. No, sir. I could have not. I do not have deep pockets. I would not be able to pay for a fast lane, so there is no way that I would be able to distribute my show. There is no way that I would have been able to find an audience or prove my market if that existed. Chairman Leahy. Well, now of course, you can have others come in and compete against you. Do you want them to have the same opportunity you have? Ms. Livier. Everyone should have the same opportunity. Everyone everywhere should have the same opportunity to do it. Chairman Leahy. You know it is interesting because I asked that question at our hearing up in Vermont. We had a couple of companies there doing extremely well now. They started off as start-ups and were happy they did not have to pay for a fast lane. They all said they could easily pay for a fast lane today because they have grown so large, but they do not want it. Ms. Livier. No. It is not fair. Chairman Leahy. Okay. Well, thank you. Ms. Livier. Thank you. Chairman Leahy. Obviously, you preach to the converted. [Laughter.] Ms. Livier. Thank you. Chairman Leahy. Ms. O'Connor, more than 3.5 million Americans filed comments with the FCC. I think that sets a record. I know the comments I have received have just been enormous. So I share your belief that the FCC has to adopt strong and clear rules to protect the open Internet. What is the best approach to do that? Ms. O'Connor. We are open to not only the Title II approach, but the hybrid approaches that have been proposed in a number of the filings as well as what is called a Section 706 heavy approach. We do think Title II is one of the clearest and most direct paths to deal with the issues raised in the overturning of the prior rules, but there are a number of policy innovations on the table. We think the FCC should consider all of them fully before making a decision. I am sensitive to--having worked in the Internet industry for many years--concern about heavy-handed regulation, but the time is now for the FCC to take action and to settle the playing field. I think Mr. Burnham's comments are quite right when he says market certainty will actually help in many ways here. So we are really asking for the FCC to take decisive action based on the principles of openness and focus on that as their goal. Chairman Leahy. Dr. Eisenach, I know in your testimony you said that in a paid prioritization world, the ISPs have an incentive to give start-ups a lowest cost access, but what if those start-ups are competing with products or services that are being provided by those who are paying the higher price? Are they going to have a conflict there? Mr. Eisenach. Well, certainly, I am glad you asked. I think this is precisely where the antitrust laws come into play. A case that we are all familiar with and remember--Senator Hatch and I talked about this at the time--was a Microsoft case. In that circumstance, you had a monopolist which exercised its market power to disadvantage a new entrant, Netscape, also JAVA at the time, and the antitrust laws were brought to bear successfully. So I think it was always hard to figure out what to do with Microsoft when you caught them, but we did finally catch them and deterred that behavior and we have not seen it since. So that is an example of how the antitrust laws can come to bear in precisely the circumstance you are talking about. That is a legitimate concern. Chairman Leahy. Mr. Burnham, how do you feel about that? Mr. Burnham. That is a very difficult way to solve the problem for a start-up. The start-ups in the Internet world come and go in a matter of years for sure, but perhaps months. So by the time an antitrust procedure works its way through the courts or even an FCC 706 procedure, I think that it would be irrelevant for most start-ups. I think you need clear bright-line rules that start-ups can rely on so that they can build their business without having to hire a lawyer and represent themselves either in front of the Department of Justice or the FCC. Chairman Leahy. Thank you very much. Senator Grassley. Senator Grassley. Thank you very much. Chairman Leahy. I would note for everybody, I kept within my 5 minutes. Senator Grassley. All right. I am going to ask Mr. McDowell to comment on something that was in Mr. Burnham's testimony about Title II reclassification and the fact that--not concerned about the impact on investment in the Internet marketplace. Do you agree with that position? Is there any problem in that area? Mr. McDowell. No. I do not agree with that position and actually, other analysts do not as well. For instance just this Monday, Robert Kaminski from Capital Alpha Partners--investment analysts called Title II classification the nuclear option. Back in 2010, when the FCC examined this issue last, Credit Suisse's Jonathan Chaplin said, ``But while it is business as usual now, capital investment will come down if Title II becomes a reality.'' So the investment community has a variety of concerns and like a lot of things, where you stand is a matter of where you sit, perhaps. Senator Grassley. To you, Dr. Eisenach and Commissioner McDowell--both of you do not have to answer this, but if you want to--I want an answer on the claim that rural communities will be hit especially hard if there is no new net neutrality rules. Do you agree and should I--coming from a rural state-- have any concern? Mr. Eisenach. You absolutely should have concern that net neutrality regulation would deter investment in rural broadband networks. That is precisely what would happen and that is something that even the advocates of net neutrality acknowledge. I am quoting Tim Wu when I say that, ``The impact of net neutrality regulations, an open question whether in subsidizing one side of the market content the welfare gains would be as great as consumers would enjoy or the benefit of expanding broadband service to new consumers.'' So in subsidizing edge providers, we are explicitly taxing consumers and the ISPs who we want to be building out rural broadband service. Senator Grassley. Yes. Do you have anything to add? If you do not want to, I will go on. Mr. McDowell. I would like to go back, actually to something Mr. Burnham said earlier, a common misconception that somehow before 2004, broadband access was classified as common carriage. That is simply not the case. If you look in the attachment to my voluminous testimony, there is a May 2010 letter to Congressman Waxman which outlines this. But you can go back to the 1996 act and also the 1998--what was called the Stevens' Report, named for Senator Stevens--to Congress from the FCC where the Clinton era FCC Chairman Kennard issued a report to Congress saying, ``Internet access services are appropriately classified as information rather than telecommunication services. The provision of Internet access services offers end-users information service capabilities inextricably intertwined with data transport. As such, we conclude that it is appropriately classified as information service.'' They have never, ever been classified under Title II, those services. Senator Grassley. All right. Mr. McDowell and Mr. Eisenach, it has been argued that antitrust analysis is purely a numbers game that does not take into account important non-economic values. Do you agree, but more importantly, does an antitrust analysis only consider financial and economic values, or can it, in fact, constitute a broader consumer welfare-based analysis that looks at other consumer values? Mr. McDowell. There is antitrust. There is also consumer protection laws, in general, as well as breach of contract and the Trial Lawyers Bar, others who would have a field day if Internet service providers, indeed, were to act in anti- competitive way that harms consumers. But when you have robustly competitive markets that actually makes a rising tide that floats all boats, not just economically, but socially as well--so let us just take a look back at what has made the Internet so fantastically successful. It has been this incredible area of freedom that has benefited society in more ways than we ever could have imagined 15 years ago. Mr. Eisenach. I would just add that we are all very strong supporters of the social benefits that have been created by the Internet both here and abroad and those benefits have been created under an unregulated regime. The concerns that--those of us who have concerns about net neutrality is that bringing regulation into the mix will harm rather than benefit those benefits in the future. Senator Grassley. Then for the two of you again--and this will be my last question--in your opinion, has there been any widespread anti-competitive behavior within the Internet ecosystem that would warrant a prescriptive regulator solution imposed by the FCC? Mr. McDowell. The answer is no. I have long advocated for years that the Government do a peer-reviewed market study that would be put out for public comment. The last time the Government looked at this was in 2007, the Federal Trade Commission. It was not a peer-reviewed market study, but they unanimously on a bipartisan basis found there was no market failure and they warned against the unintended consequences of new rules. Mr. Eisenach. Yes. I think what we have seen is some occasional accusations, but the accusations have not been borne out. Most recently, Netflix--I think--has been making wild accusations with respect to Comcast and other ISPs. In a current filing at the Federal Communications Commission in the past few days, it has acknowledged that it was the one that was throttling traffic and then turned around and used the slow delivery of some of its traffic to some of its customers as an excuse to try to seek regulation of the ISPs. So I think there is the potential for lots of back and forth. That is what we are worried about. But there have not been any bonafide antitrust problems that we know of. Senator Grassley. Thank you. Those are all my questions, but I have some materials I would like to enter into the record. Senator Hirono. Certainly, without objection. [The information referred to appears as submissions for the record.] Senator Hirono. Senator Klobuchar. Senator Klobuchar. Thank you very much, Madam Chair. Thank you for holding this important hearing to Senator Leahy, Senator Grassley. The open and equal nature of the Internet has been incredibly important for economic development in the U.S. and I do not think people always think of it that way, but it has been. In our state of Minnesota where Senator Franken and I serve, online sales represented more than 36 billion in revenue for local businesses just last year. And in the wake of recent court decisions, it has become clear that the FCC needs to pursue new rules. The record three million comments received by the FCC--I believe the website went down a number of times--are proof that Americans recognize the impact of these decisions and the importance of our careful deliberation. Legitimate concerns have been raised about the FCC's May 2014 rulemaking proposal regarding what authority the agency is seeking to use and what regulations may include or what types of business arrangements would be allowed. As Chairman of the Senate Judiciary Antitrust Competition Policy and Consumer Rights Subcommittee, I have a strong interest in ensuring robust competition for all users of the Internet. And as I wrote the FCC earlier this summer, antitrust law alone is not sufficient to regulate the Internet. We need a clear set of rules for a fair playing field. Mr. Burnham, one of the most central elements of the Internet is its ability to foster new and creative developments like Yahoo and Google, Facebook, they have all resulted from literally students using the open and free Internet to create billion dollar companies. As a venture capitalist in this field, what is the most important idea for encouraging this type of innovation, how will investment in tech and Internet companies change if FCC rules do not sufficiently protect and promote the open Internet and competition? Mr. Burnham. It will change. And so we are really debating here investment in the Internet or in the infrastructure that delivers the Internet and investment on the Internet. The problem with investing on the Internet, you know, the opportunity that we have had is to invest in any idea that could reach any consumer in a completely free and open way with no discrimination. The minute you begin to allow the infrastructure, the wires that deliver that service to consumers to reach up into that layer and either manage it for network management purposes or extract some kind of rents from that layer, it distorts that market. And so we as investors would have to then consider what kind of relationship they had with a provider. If you want to get a hint of what this looks like, think back to all of the applications that were created and distributed by cell phone operators on their cell phone before the iPhone. How many of those actually became businesses? How many of those did you actually use? Those services were controlled by the carriers and distributed by the carriers. And you had to get permission of the carrier to launch that service. Once we opened that up, the world changed. Senator Klobuchar. Right. Exactly. Mr. Eisenach, do you not you think this paid prioritization could affect this investment that I was just discussing with Mr. Burnham? Mr. Eisenach. Well, two points. The first point is that he is right. This is a question over who will pay for the network. And the proposal, as Mr. Burnham said very clearly is that consumers pay 100 percent of the cost of the network and rich venture capital firms like Mr. Burnham's and their companies that they invest in pay zero. Now, there is no shortage of investment going into Internet start-up companies. Mr. Burnham's company has invested hundreds of millions of dollars and returned billions of dollars on those investments, and that is in the absence of net neutrality regulation. There is simply no basis for thinking net neutrality regulation is needed. This is my second point, the phenomenon Mr. Burnham just described which is the death of vertically integrated cell phone applications and the rise of this very vibrant mobile applications economy happened in the absence of any kind of net neutrality regulation. It happened through the free market. Senator Klobuchar. Can I go to Ms. O'Connor because you have heard Ms. McDowell and Dr. Eisenach talking about how antitrust laws could be used effectively and I want to know what you think. Do you believe that antitrust law is sufficient to address potential Internet distribution issues, the things that would harm competition and consumers and what do you think needs to be done? Ms. O'Connor. Well, the short answer to that question is no. After almost 20 years of practicing law, I have seen few areas of the bar short of their ability to solve the problem than the antitrust bar, maybe second only to the telecom bar. But I do not think it works in this context. First of all the analysis is largely economic and commercial, but it is also ex post. So it would not solve for the issue Mr. Burnham has raised, and that is a very real one, the ability of a small independent start-up or an individual user to get online absent interference. To ask those individuals to apply for antitrust relief after the fact would basically prevent individual freedom and opportunity in getting into the Internet economy, into the Internet space, into the digital world. So it is not an effective and it is not a complete solution to the problem we are facing of a truly open and vibrant digital life. Senator Klobuchar. Thank you. Senator Hirono. Senator Lee. Senator Lee. Thank you, Madam Chair, and thanks to each of you for being here today and for your thoughtful testimony. The issue of an open Internet has attracted a lot of attention from a lot of Americans. A considerable amount of public attention. Now, regardless of where any American stands on this issue, whether someone views herself as in support of or against what is commonly known as net neutrality, Americans are sending a consistent message which is, do not break the Internet. Do not mess with it. Do not mess with the most vibrant, expansive, even explosive area of our economy because it has worked and it has worked well, and it has brought enormous benefits in terms of economic growth to our great country and it has played an important role in bringing more information, more education, more entertainment, more opportunities generally to people not only throughout our great country, but throughout the world. Subjecting the Internet to heavy-handed regulations, the type of regulations that were designed to regulate the railroad industry in the 19th century and designed to regulate Ma Bell in the 20th century could threaten to do precisely that. Unwise regulation in this area would do nothing, I fear, but stifle much-needed innovation in Internet service and would, in the process, make it harder in the long run for consumers to be able to secure better service and ultimately have a real choice, more choices than they currently have about who delivers their Internet service. Anyone who has ever had an hour-long frustrating phone call with their cable company's customer service representative knows that consumers certainly could use more choices rather than fewer choices, particularly in this area. The proposed regulations of the sort that we are talking about today, would, I fear, do nothing to make the underlying problem better, but instead, I fear, would make it much, much worse. So I have a few questions. I would like to talk to you first, Dr. Eisenach. Rent-seeking is often defined as a process in which someone devotes money and other resources to lobbying government so that they can take in a greater share of wealth that is already been produced without actually generating wealth on their own. Would you agree basically with that definition? Mr. Eisenach. I think that is correct. Senator Lee. Do you think we should be concerned about the possibility that the sort of FCC regulation that we are talking about today will lead to more rent-seeking behavior than it would solve the problems for which it was purportedly designed to solve? Mr. Eisenach. Absolutely. The FCC has a long history and an unfortunate history in the rent-seeking department. Ronald Coase who won a Nobel Prize for helping to develop the theory of rent-seeking won it in part for an article titled ``The Federal Communications Commission'' which was about the lobbying and political influence that went into the allocation of broadcast licenses back during the 1950s and 1960s. That same kind of activity, and I spent an unfortunate amount of my time in and around the Federal Communications Commission and a tremendous amount of activity, as Rob knows better than anyone, goes into precisely that sort of lobbying and everyone who is paying a lobbyist to be there on all sides of the argument is there defending the interests--their economic interests--in these arguments. Senator Lee. So when government gets involved in picking winners and losers in the marketplace, the winners end up being not necessarily those who provide the best service at the best price to consumers, but rather those with the most effective context perhaps with the best relationships to government decisionmakers. I would like to ask you briefly about a point that was made earlier, I believe, by Mr. Burnham. An analogy was made to an air conditioner. Let us take that analogy a step further, let us explore it a little bit more. Let us suppose that someone installed a particular type of air conditioner that consumed an extraordinary amount of electric power, so much power that it made it very difficult for the electric utility in question to supply adequate electricity to other customers in the area. Would there be anything extraordinary about the electric power company perhaps charging a higher rate for that consumer who chose to use that particular air conditioning system? Mr. Eisenach. No, nor would there be anything wrong with the electric company turning around and saying to manufacturers of air conditioners, you know, our network, our ability to serve our customers efficiently depends on your making more efficient air conditioners. We would like to give incentives for you to use less energy in the air conditioners that you manufacture. Both of those would be good things and would result in more efficient markets. Senator Lee. And one follow-up to that. If the electric utility company in question decided to get into the business of providing its own air conditioning equipment to its rate payers, if it did that and then engaged in practices that favored its own system as compared to others, would not antitrust laws be equipped to handle that? And so too here, to the extent that we have Internet service providers that start to compete with content providers, if they use their position in the marketplace in an anti-competitive manner, are our antitrust laws not there for that very reason? Mr. Eisenach. Absolutely. That story is called Microsoft and Netscape. And one can easily imagine that story replaying itself in this environment. And one can easily imagine the antitrust laws being responsive to that. One point very quickly on the speed with which regulation versus antitrust can be brought to bear. We are a decade into the net neutrality saga. We do not have enforceable rules. Whatever the FCC does, we will not have enforceable rules for three to 5 years while this round of regulatory gamesmanship plays itself out in the courts. In the meantime we could have had five rounds of antitrust cases. So the notion that regulation is a faster way of getting to the right end I think is upside down. Senator Lee. Okay. Thank you, sir. I see my time is expired, Madam Chair, thank you. Senator Hirono. Thank you. Senator Franken. Senator Franken. Thank you, Madam Chair. I think there is a fundamental misunderstanding here. Net neutrality is not about regulating the Internet. Net neutrality is about preserving the Internet as it is. Net neutrality has been the architecture of the Internet from the very beginning. Innovation has not just happened while net neutrality has been in place. It has happened because net neutrality is in place. Let me just talk about one example so everybody who is listening and watching can hear. Before YouTube there was a thing called Google Video. It was not very good. The guys who started YouTube did it over a pizza place in San Mateo, California. It was superior to Google Video. And because it was allowed to travel at the same speed, people preferred it and it replaced Google Video as the medium that people watched videos on. And Google ended up buying it for $1.6 billion. This is about innovation that has taken place because of net neutrality. What the FCC has proposed, paid prioritization--that represents a change. That is why 3.5 million people have commented--because they understand this. This is not about new regulation; this is about preserving the structure that we have had. The Occam's razor here is do not change what we have. Ms. O'Connor, can you speak to that? Ms. O'Connor. Thank you so much, Senator Franken and thank you so much for your leadership on this issue. That is exactly right, there has always not only been rules and regulation, but there has been the specter of enforcement by the FCC and the FTC for the entire lifetime of the Internet. We are looking at it not only obviously as an economic empowerment issue and as an opportunity for growth and innovation, and small business empowerment, we are looking at it as a need of the individual to engage in digital life in every aspect of their world: in their communications with their spouses, with their employers, with their schools, with each other. The example that Jeff gave about antitrust law versus net neutrality regulation I think actually proves the point. In the case he cited, Microsoft v. Netscape, millions of dollars of legal fees were spent on both sides. No small business is going to have the resources to engage in that kind of fight. But 3.5 million individual citizens of this country were able to comment on this proceeding at the FCC. That proves the point that regulation is a more democratic opportunity here, and this is the path we need the FCC to take. Senator Franken. And it is just preserving the way it has been the whole time. So all this innovation you have cited, all this investment you have cited has happened while there has been net neutrality. Mr. Burnham, I have met with some small businesses in Minnesota and start-ups who tell me that net neutrality is just crucial for them. They are making applications to do all kinds of things ranging from a company called ``thisCLICKS,'' which helps companies manage their employees' time sheets. That is in St. Paul. A Minnesota company called ``Sport Ngin,'' which is now employing about 300 people, has tripled their number of people in the last year, connecting people who want to join recreational sports leagues. Now these companies are growing and they are innovating and there are thousands and thousands of companies like them. Now, if under pay prioritization they were made to compete with bigger, deep-pocketed entities, they could not do that, but let us say they did. Let us say they got on, they paid for pay prioritization. What they told me is that the apps that they use--the software that they use to run their app--unless those subcontractors pay for pay prioritization, their thing would not work. Is this not all about these pay prioritizations? Is this not about squelching the kind of innovation that we have all been celebrating, all five witnesses? Is that not the way it has been and aren't these pay prioritization lanes going to squelch that? Is that not a huge change? Mr. Burnham. It is a huge change. And as I pointed out in my testimony, it is only in the last few years that the Internet access providers have even had the technology to figure out what you are doing online and therefore to be able to discriminate between that. So not only do we have the threat of FCC enforcement, but we also had the lack of technology in place. That is what has changed. The technology is in place and the FCC has proposed a new set of rules. You bring up a very interesting point which is, it is not just the application that you see that matters, it is all the applications that they use. So, for instance Tumblr runs their application in their own data center, but they store all of their images at Amazon. And so in order to load a Tumblr page, you go to the Tumblr data center, but you also send a call out to the Amazon data center. If Amazon is not paying for paid prioritization, that page will not load. So there is a whole ecosystem of services that are built on top--or rather underneath--the services that you see that would also be affected. Senator Franken. Well, speaking of Amazon, all the companies that are like Amazon: DropBox, eBay, Facebook, Google, Microsoft, Netflix, Reddit, Tumblr, Twitter--they are all saying we need this. These are the innovators. And I just want everybody to understand that this is about preserving the Internet the way it is. That is what net neutrality is about. Thank you, Madam Chair. Senator Hirono. Senator Hatch. Senator Hatch. Well, thank you, Madam Chairperson. Net neutrality is not a new issue. Congress has been debating this issue for year. As Chairman of the Senate Republican High Tech Task Force I co-authored a Wall Street Journal op-ed in the fall of 2009 when then FCC Chairman Julius Genachowski and his Democratic colleagues first proposed their net neutrality rules. My op-ed entitled ``Who is Going to Build the Information Superhighway'' is just as applicable today as it was then. Here is what I wrote in 2009. ``If there is any sector of our economy where competition is so fierce, and where the pace of innovation is so rapid that government interference would only get in the way, it is the Internet and telecommunications market. The Internet has grown because of the virtuous and mutually beneficial circle. ``Network operator provide ever-increasing speed and bandwidth. Content providers one-up each other with game changing innovations and consumers adapt and adopt at lightning speed. Yet despite an overwhelming record of innovation and customer satisfaction Washington wants to replace the judgment of consumers with that of politicians and bureaucrats. Net neutrality may sound like fairness, but it is actually the opposite. Bandwidth is finite like the finite number of lanes on a highway network providers must innovate in order to accommodate the burgeoning traffic. As they invest billions of private dollars in new and improved networks they should right expect to set prices and manage those networks as they see fit. ``If the FCC takes control of the Internet, we will have the inevitable result of all poorly designed regulations, business decisions prejudiced by politicians and political decisions prejudiced by corporations. Keep in mind we are talking about the most competitive, efficient, and consumer- driven industry in the global economy.'' Now, I did not write those words 5 days ago, but 5 years ago. I ask unanimous consent to enter the entire Wall Street Journal op-ed into the record at this point? Senator Hirono. Without objection. [The op-ed referred to appears as a submission for the record.] Senator Hatch. Although 5 years have past, those statements are just as true today. We have been the recipients of an explosion of apps, products, and services that directly result from broadband and Internet growth. Without government regulation the Internet is growing. So what is the problem? What is broken? What is it that needs to be fixed? An unregulated Internet has spurred innovation and economic growth all around the world. Yet despite all these successes, some argue we need to regulate the Internet. I cannot disagree more. Let me just ask Mr. McDowell and Mr. Eisenach to answer a simple question. If so, what is it that needs to be fixed here? If you could answer that question. Mr. McDowell. Senator, you raise an excellent point which is nothing is broken that needs fixing. And we have the open and freedom enhancing explosive and amazingly bountiful Internet today precisely because of market forces and the laws that already existed before there were any formal net neutrality rules which really did not even start happening until 2008. We had Facebook, eBay, all those great companies had already blossomed into giants. Senator Hatch. They did not do that because of net neutrality rules. Mr. McDowell. It was long before then. Senator Hatch. Right. Mr. Eisenach. Mr. Eisenach. Well, Senator, absolutely. So what you have in the Internet echo system is you have lots of firms who are creating value and they share in the creation of that value. So edge providers and networks and applications providers all have to get together. They get together on the screen of your iPhone to produce something of tremendous value and they fight about how they are going to share that value creation. All right. Every day on the Internet is a battle over who is going to---- Senator Hatch. I want to keep that fight going. Mr. Eisenach. And that fight should happen between private companies in private bargaining as opposed to being a complaint before the Federal Communications Commission every time two parties disagree. Senator Hatch. Well, let me ask you both again, do you think that the Internet today would be characterized by the current level of innovation if it had been subject to common carrier regulation? Mr. McDowell. No, sir. What folks are calling for is what is called ex-ante regulation, before the fact, or what some call ``Mother May I,'' which is that then starts to prompt companies that may have thousands of miles of fiber optics and servers and routers that offer voice, video, and data services, those could be tech start-ups. Those are going to be tech companies, not what we think of as cable or phone companies. Senator Hatch. Let me ask you---- Mr. McDowell. They would have to file petitions for declaratory ruling at the FCC for permission to innovate. Senator Hatch. Sure. Now, what will be the global impact if the FCC reclassifies the Internet as a utility under Title II of the Communications Act? Mr. Eisenach. The International Telecommunications Union has been trying to get its hands on the Internet since the mid- 1990s when the Clinton administration said no. And that is precisely what would happen. They would ultimately be successful in doing what they would like to do which is regulate the Internet as a public utility internationally. Senator Hatch. One last question and this just needs a yes or no from both of you. In your view would investment and innovation increase or decrease if the FCC subjects broadband services to common carrier regulation? Mr. McDowell. I think the right answer is decrease, not yes or no, but, yes, decrease. Mr. Eisenach. Technological innovation would decrease; lobbying innovation, however, would grow. Senator Hatch. What are we talking about here. I mean, to me, I cannot understand why my friends on the other side love this type of regulation so much when I think it will wind up really fowling up the whole Internet. Well, thank you, Madam Chairman. Senator Hirono. Thank you. We have heard a lot about the antitrust laws as being adequate to provide consumer protection in this area. I am curious to know from either Mr. Burnham or Ms. O'Connor who I assume you have practiced in this area, you understand antitrust law. So, Ms. Livier has said that if we did not have net neutrality it would be highly unlikely that you would have been able to get your show on the Internet. So I am curious to know what kind of--in her situation looking at that kind of start-up, Mr. Burnham or Ms. O'Connor, what kind of antitrust claim would lie that she could pursue? Are we talking about price fixing? Are we talking about time? What are we talking about? What would she be able to proceed under to go forward? Mr. Burnham. Well, I am not a lawyer and I am not practiced in antitrust law, so I am going to turn it over to Ms. O'Connor. Ms. O'Connor. Having been in the Internet law and policy space again my entire career almost working in front of the Federal Trade Commission and in this area, there would be precious few remedies available under antitrust law. Your point is incredibly well taken. The limitations for a small individual artist or start-up company or individual end user to avail themselves of redress under the law would be quite limited. And the phrase that keeps coming to mind is, your antitrust law is not good enough for my Internet. It is just not comprehensive enough to protect the needs of the individual end user, the rights of the citizen. Again, it is a fallacy to say the Internet has not been regulated. I was at a company in the late 1990s that had not only an FTC investigation, but 21 class actions, 12 attorney general investigations, a slew of regulatory oversight for the idea--the scintilla of an idea about a data matching project. It is wrong to say the Internet has not been regulated by the FCC and the FTC for years. To not act right now would actually be the change. Senator Franken is right, to not act would be the absence of the playing field that is open and accessible to the individual end user. Senator Hirono. Thank you. I appreciate, Mr. Burnham, your pointing out that the technology has changed, so now our providers can figure out what the consumers are accessing. I think that is a very powerful piece of information for providers. And this is why I believe that the landscape is changing and why we are here today. Now, Ms. O'Connor, you mentioned that--and several of you mentioned Title II is really probably not terribly applicable because Title II is a public utility. And we regulate public utilities up the kazoo. So this is not necessarily where we want to go. You also mentioned that maybe we should look at Section 706. But that may not fit either. So my question to either Mr. Burnham, or you, Ms. O'Connor, is should we be talking about a new title? Ms. O'Connor. We would welcome that kind of policy innovation from Congress or from the Federal Communications Commission. The Internet is a precious and valuable space for the individual and for the end user and for small business innovation. And I am sympathetic to those claims that these are old titles that were based in historical parts of the economy that are very different. And we do not want to slow down the speed of the Internet economy and growth. But given the options on the table, we encourage the FCC to explore all of the options, all of the opportunities. And we have seen some very creative hybrid approaches proposed by policy groups and by companies, things that would combine 706 and Title II to get the enforcement abilities of both. And we encourage the FCC to consider those. Senator Hirono. Well, possibly in the best of all worlds that we would be coming up with a very clear new title, but in the absence of that happening, which will very likely be the case, that you are saying that the FCC--and I assume that Mr. Burnham agrees--that they have the authority to proceed under either Section 706 or Title II---- Ms. O'Connor. Yes. Senator Hirono [continuing]. To protect consumers? I mean, clearly consumers feel that net neutrality is important because all of us have heard from hundreds, and hundreds, and hundreds of our constituents who have said, make sure that we are not going to create an environment where they are going to have to pay differential rates for access to the Internet. So my time is fast expiring and I would like to--well, Senator Flake. Senator Flake. I will go quickly. I find it interesting, I heard one of my colleagues say that the purpose of these net neutrality rules is to maintain the Internet as it is. Imagine if any tech company said, we are going to succeed by maintaining our company as it is. If Apple prior to launching iPhone 6 or the Apple watch said, we are just going to maintain as it is. I do not think if the Internet stays as it is, that it will be prepared for the future innovations that we are going to need to advance. I hear the same kind of arguments with regard to pharmaceuticals or drug companies. I think with regulation we can make current drugs cheaper. You can, but you do not get the innovation you need to grow and progress and to go into other areas. So, I am always wary when we want to maintain something as it is especially something as dynamic as the Internet. But just one question. I know we have votes going on. Dr. Eisenach, you have done some work in this area, can you discuss the University of Pennsylvania, Professor Chris Hugh's work on Europe and investment in broadband and Internet compared where they have regulatory regime perhaps similar to what we would be moving to here compared to what we have here? What is the difference between investment there and in the United States? Mr. Eisenach. Thank you, Senator Flake. As Christopher Hugh has written as Richard Bennett at the American Enterprise Institute has written in a new study available from the TechPolicyDaily.com. The Europeans have followed a much more regulatory course than the U.S. and five or 10 years ago there was a debate about how wise a course that was. There was a debate about whether the U.S. was ahead or behind in broadband infrastructure. There is no debate today. The Europeans have recognized that the U.S. course was the wiser course. There is almost no fiber availability, virtually no fiber availability from telephone companies and very little from cable companies in Europe. The Europeans are a generation behind now on wireless broadband access, LTE only covers about a quarter of the population of Europe versus virtually 100 percent of the U.S. So the regulatory course proved to be disastrous for Europe. And I think has the potential--we talked about leaving things the same versus changing them. The Internet has not been regulated. Net neutrality is a proposal to regulate it, I think it is that simple. Senator Hirono. We need to vote now, so I would like to call a brief recess and ask the witnesses to remain until I return. And I am also expecting Senator Blumenthal to return so he can pose his questions. Recess. [Whereupon at 12:08 p.m., the Committee recessed.] [Whereupon at 12:15 p.m., the Committee reconvened.] Senator Blumenthal. We are now back in session. Thank you very much for being so patient. I was going to apologize for voting, but we should not be apologizing for voting. We should be applauded for moving forward. Thank you. Let me ask, I have a few questions and then I understand Senator Cruz is coming back. Mr. Burnham, as you know better than anyone, the Internet's incredible economic success has been made possible because it is an open platform where anyone with a good idea can connect and consumers across the globe can compete on a level playing field for their business. And it is the relevance of an entrepreneur's product, the consumers are not sort of their sweetheart deals with large broadband providers that determine success. After launching their business start-ups frequently come to you, they want to be financed. They need capital. And they pitch their ideas to secure additional funding that would take their ideas to the next level. Without net neutrality start-ups may not even be able to launch their products without turning to you for funding first. And it seems like to be successful in a paid priority context, you would want to know whether they have a deal with Comcast or AT&T. They would have to come to you with that sort of sweetheart deal first. Can you tell me how the content of start-up pitches would change in a world without the net neutrality rules? How do your criteria as an investor change? Mr. Burnham. Well, we would need to understand the relationship between what they were doing and the interests of the companies that they depended on for distribution. And so that would--you know, we would stop focusing on the innovation and start focusing on the deal that they had struck. And that would make it very difficult. I think, you know, contrary to what Mr. Eisenach has said about venture capital, this actually is not so bad for venture capital. If we end up in a paid prioritization regime because every start-up would now have to come to us first. They would have no negotiating leverage and we could extract a fairly big chunk of the company in exchange for taking the risk to fund them in this new riskier environment. The way the world works today, start-ups launch, they get to scale, and they have real engagement with users, real traction, and then they farm out, you know, they basically shop that opportunity and venture capitalist compete with each other to do that deal because they have already proven that it works. That is a much better situation for entrepreneurs and start-up and any creator. It is not so great for venture capital, but we would prefer to see the world favoring entrepreneurs. Senator Blumenthal. So it might be better for some of the sources of financing, but worse for the start-ups, worse for the entrepreneurs? Mr. Burnham. Yes. Senator Blumenthal. Ms. O'Connor, the antitrust laws are intended to prohibit business practices that unreasonably deprive consumers of the benefits of competition and that result in higher prices for goods and services. These important laws are crucial to America's success today by prohibiting collusion, conspiracy, monopoly power, and they evaluate combinations and agreements to preserve competition. But really what is at stake here is more than just questions of the economic benefit, it has also harmed the customers and freedom of speech. It is the speech that is made possible as a core component of our democracy. In a world of pay prioritization, for example, NBC's website could tap into its affiliation with Comcast to make sure that its news reaches Comcast subscribers faster than Fox's website. Or we could see one Presidential candidate pay a broadband provider so that content on his or her website loads faster than the other candidates. Consumers and content providers alike would be affected. And these are effects in noneconomic ways. So my belief is that to safeguard free speech in the 21st century and the infrastructure that prevents interference with free speech, we ought to make sure that net neutrality is preserved. And maybe you can tell us a little bit more about how net neutrality affects those values of free speech? Ms. O'Connor. Senator Blumenthal thank you so much for raising what we think is the fundamental question. It is important to address the antitrust laws and the appropriate authorities the FCC should consider. But it is the voices of the individual citizen, the voices of the artists like Ruth. The voices of the entrepreneur, the start-up technology who has the tiny kernel of an idea. Those are the voices we are concerned about, not only in the United States, but around the world. And the concern, first of all, internationally that by taking some action we will be sending the wrong signal to the rest of the world, we are concerned about that too at CDT, but we think the signal we would be sending is that free speech is a fundamental right. It is the most important right, and the Internet is the greatest engine and the greatest platform that history has known for the individual's voice to be heard. An independent artist like Ruth can suddenly reach millions of viewers overnight. A small company like the ones Senator Leahy talked about can suddenly reach customers all around the world. Without strong open Internet protections, those voices will go to the back of the line. This is simply unacceptable and undemocratic. It is the fundamental reason I am here today. Thank you. Senator Blumenthal. Well, thank you for that strong statement. I agree completely with you because it highlights the non-economic benefits, but those non-economic benefits in turn produce enormous value throughout our society. It is the reason that entrepreneurs want to come here. And scientists want to invent and that great writers want to be here. The value of free speech is what distinguishes America, our protections for free speech. Let me ask Commissioner McDowell, you know, I know from what I have been told that you have spoken about the efficiency and effectiveness of the market and competition apart from the net neutrality rules. Two weeks ago FCC Chairman Wheeler said, and I am quoting, ``Meaningful competition for high speed, wired broadband is lacking and Americans need more competitive choices for faster and better Internet connections.'' He went on to say that ``between three-quarters and 82 percent of consumers lack choice depending on the service.'' Why do you believe that broadband is a competitive market that will correct itself in light of what Chairman Wheeler has said? Mr. McDowell. Thank you, Senator, and it is a privilege to be before you today. Excellent question. I think the Commission is looking at the broadband market too myopically. We have wireless broadband. We also have unlicensed wireless. Senator Klobuchar and I have worked very closely together on the proliferation of that. If you look at market data, I also look at my children, my young kids, the number one screen now is becoming the mobile screen. And that is causing a wonderfully disruptive element to the marketplace. So that is, I think, disrupting things in a way we could not have imagined 10 years ago. Back to your Comcast and NBC analogy though, there are a number of complaints, thinking as a lawyer, that could be brought, not just in the antitrust context that would prevent that from happening or deter that from happening like exclusionary conduct and raising rivals' costs, but also breach of contract and tortious interference with contract and state attorneys general of which you were one, would have a field day if that type of behavior were to happen. That is also a deterrent, I think, in the marketplace. Senator Blumenthal. Thank you. Well, I want to thank all of you for giving us the benefit of your wisdom and insight on this very, very important issue. It has been very valuable testimony. I am going to turn back to Senator Hirono if she has additional questions. And, again, many thanks for being here. Senator Hirono. Thank you. I understand that Senator Cruz is on his way back. So I would like to give him the opportunity to come back in time to ask his questions. So that being the case I have a question for Ms. O'Connor. Chairman Wheeler has proposed evaluating certain practices of broadband providers under a commercially reasonable standard. Can you explain your concerns with that standard and why it would be a poor fit for preserving open Internet? Ms. O'Connor. Thank you so much, Senator. The commercially reasonable standard was only a relatively recent creation of the Federal Communications Commission and it certainly goes to the commercial qualities of any agreement between various providers on the Internet. But we think it misses the mark in an open Internet proceeding that is, we wish, to protect the interests of the individual end user and the entrant to the market, not the established players. We seek a standard that looks more like something that protects the qualities of an open Internet or does not degrade services to the individual. So we think that not only the language, but kind of the theory underpinning commercially reasonable, while perhaps and completely applicable in other contexts under FCC jurisdiction is not the right standard for a rulemaking proposal that seeks to protect the qualities of a flat Internet structure that allows for low barriers to entry and a free market--and a market that is open to all. Senator Hirono. Thank you. Mr. McDowell, you have testified that the antitrust laws would be adequate to protect the consumers. So there has been discussion about the antitrust laws as basically protecting an economic argument. So if the Internet providers now know what customers are accessing, it would be a way for them to determine without net neutrality rules in place that they would want to have differential pricing based on what the consumer is accessing. So in that kind of circumstance, do you think that the antitrust laws are adequate to protect the consumers' right to access whatever programming and applications the consumer wants to access? Mr. McDowell. I do. And as I explained in greater length in the appendices to my testimony more about that. But not just the antitrust laws, but general consumer protection laws, Section 5 of the Federal Trade Commission Act, for instance, you have state laws and other Federal laws. As I was explaining to Senator Blumenthal, breach of contract, tortious interference with contract. You have to remember that every major ISP has in their terms of service, their contracts essentially, with their customers these types of protections. If they were to breach them, the plaintiffs' bar would have a field day. That is a huge deterrent right there. But let us look at what has worked. What has worked in this country to have a wonderfully, you know, blossoming Internet ecosystem are the laws that are in place, that were in place before net neutrality came about as a government action which was only 2008. You know, the iPhone came about in 2007. And the ap community started to--the ap industry started to explode. So that is what has made it wonderful is the marketplace, market forces, and these general, flexible, more nimble rules that are in place that, as Nuala pointed out before, in the 1990s she was at a company or knew of a company that was investigated by the Federal Trade Commission, state attorneys general, and all the rest. What is better than creating a new body of law which would create uncertainty and years of litigation, as Dr. Eisenach pointed out, would be for the Government to sit down and sort of assemble a war council. I called for this for years. You could have the Federal Trade Commission, you could have the FCC, you could have the Department of Justice, state attorneys general, consumer groups, the plaintiffs' bar, all sit down and say, hey look, any of you, whether you are ISPs, or you are search engine giants, if you act in an anti-competitive way that harms consumers, then we are going to come down on you. We are going to launch this avalanche of rules. But I also agree and wanted to speak to the fact that we sorely need to rewrite the Communications Act of 1934. We need to start over and look at all of this through the lens of consumer protection, knock down the silos that regulate based on your technology whether it is copper, or coaxial cable, or fiber, or wireless. All those are regulated differently. From the consumers' perspective, they just want their stuff when they want it and generate it, right? So they do not really care what the laws are behind the scenes. They are antiquated, they need to be rewritten. I hope in the next Congress we can get that done. Senator Hirono. I see our witnesses nodding their heads. So there seems to be general agreement that we probably should amend the 1934 law so that it is up with the times. So pretty much you agree? Well, maybe we can work on that. I see that Senator--I am sorry, Ms. O'Connor, did you want to say something? Ms. O'Connor. I could not agree more that consumers want what they want when they want it. And they do not really differentiate how they get their Internet whether it is on their mobile device, or on their home computer, or in the air. And I would like us to consider banning the phrase ``Internet of things.'' This is not the Internet of things. This is the Internet of people. So we want what we want when we want it, but we also want a level playing field to get in the game. Senator Hirono. Thank you. Senator Cruz. Senator Cruz. Thank you, Madam Chairman. And I want to thank each of the witnesses for being here today to discuss a critical issue that impacts the desire of all of us to keep the Internet free and open, a marketplace of competition and an oasis that historically has been beyond the unnecessary reach of government regulators. This is by no means the first time the issue of so-called net neutrality has been raised. And every time it stirs up an interesting debate between government regulation versus to some the terrifying freedom of the Internet. I think the American people do not find that freedom all that terrifying at all. The FCC's latest adventure in net neutrality in my view would only serve to stifle innovation, and would potentially subject the Internet to nanny state regulation from Washington. Internet freedom has produced robust free speech for billions across the world. And a wide open incubator for entrepreneurs to generate jobs and to expand opportunity. Back in May, FCC Commissioner Ajit Pai said this is, ``not for us five unelected individuals to decide. Instead it should be resolved by the people's elected representatives, those who choose the direction of the Government and those whom the American people can hold accountable for their choice.'' I could not agree more. Although in Washington there are a lot of folks in Congress who are fans of pushing difficult decisions off to unelected members of our Government to insulate themselves from accountability at the voting booth. And I fully agree with Commissioner Pai that a five-member government panel should not be dictating how Internet services will be provided to millions of Americans. More than $1.2 trillion has already been invested in broadband infrastructure since 1996. And that has led to an explosion of new content, applications, and Internet accessibility. The FCC should not be endangering future investments by needlessly stifling growth in the online sector which remains one of the few bright spots in an economy that is otherwise struggling. Net neutrality is a wolf in sheep's clothing. It is a set of government directives disguised, as they always are, as concerns about consumers and competition. That is the justification for nanny state regulations over and over again, whether it is the Mayor of New York telling us that our glass of Coke is too big, or the FCC deciding here is how the Internet should be governed. We must keep in mind that when government imposes new regulations, inevitably the cost of them is easily absorbed by the large dominant companies, by the major players, and those who bear the brunt of it, those who are fatally strangled so often by these regulations are the little guys or the start-ups or the ``mom and pops.'' The Internet has grown and flourished in ways we never could have imagined from back in the days when Al Gore invented the Internet. And a big part of the reason has been that Washington has left the Internet alone. Now, that used to be a bipartisan commitment. Back in 1996, President Clinton said, ``Governments can have a profound effect on the growth of electronic commerce. By their actions they can facilitate electronic trade or inhibit it.'' Government officials should respect the unique nature of the medium and recognize that widespread competition and increased consumer choice should be the defining features of the new digital marketplace. We are seeing this growth in nanny state regulation in many contexts. One is net neutrality and the push to bring Washington into the day-to-day, online world. Another is a bill that Congress is considering and that I fear Congress will try to push through in the lame duck session and that is, namely, extending an Internet sales tax to millions of ``moms and pops'' who are selling their goods online who are starting small businesses and who if Congress has its way will be forced to collect taxes for 9600 jurisdictions nationwide. The big guys will be benefited by that. But the little guys, the young people, the Hispanics, the African Americans, the single moms, the people just filled with hopes and dreams wanting the American dream will find their lives made harder if we begin taxing the Internet, if we begin regulating the Internet. Instead, I believe we should protect the freedom of the Internet. And that should be something that brings us together across partisan lines, across the country, keep the Internet free that protects our speech. It protects our economy, and most importantly it protects opportunity for those who are struggling and want a better life. Thank you, Madam Chairman. Senator Hirono. Thank you, Senator Cruz. Thank you to our witnesses. This hearing is adjourned and the record will stay open for 1 week. [Whereupon, at 12:36 p.m., the Committee was adjourned.] [Additional material submitted for the record follows.] A P P E N D I X Additional Material Submitted for the Record [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Additional Submissions for the Record A list of material and links can be found below for Submissions for the Record not printed due to voluminous nature, previously printed by an agency of the Federal Government, or other criteria determined by the Committee: Journal of Law and Economics, The, R.H. Coase, October 1959, article: http://www.jstor.org/stable/724927. Federal Communications Law Journal, Jeffrey A. Eisenach and Hal J. Singer, June 2013, article: http://www.fclj.org/wp-content/uploads/2013/09/65-3-Singer.pdf. Social Science Research Network (SSRN), Jerry Brito et al., April 12, 2010, article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 1587058&download=yes. American Enterprise Institute, Jeffrey A. Eisenach, Ph.D., economic study: http://www.aei.org/files/2012/10/17/-broadband-competition-in- the- internet-ecosystem_164734199280.pdf. Eisenach, Jeffrey A., and Ilene Knable Gotts, ``In Search of a Competition Doctrine for Information Technology Markets: Recent Antitrust Developments in the Online Sector,'' paper: http://www.techpolicydaily.com/wp-content/uploads/2014/06/In- Search- of-a-Competition-Doctrine-for-Information-Technology-Markets- Eisenach- Gotts.pdf. Federal Communications Commission (FCC), Electronic Comment Filing System, September 4, 2014, online posting: http://apps.fcc.gov/ecfs/comment/view?id=6018327622. [all]