FTC NN4

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Remarks By Commissioner Leibowitz

FTC Commissioner Leibowitz Delivers Remarks.

>>COMMISSIONER LIEBOWITZ
Thank you so much, Maureen. If everyone will get seated, that would be great and I'll get started. Let me first actually start by congratulating Maureen Ohlhausen and her staff for putting together a forum where many of the most important members of the network neutrality debate get to air their positions in front of their most knowledgeable and determined critics. It's important because to some extent, the debate has been about; it's really been a battle of sort of utopian worlds where each side warns of the misery and wretchedness to come if we don't listen to this. Now, some of the fears are legitimate but as I listened to the debate over the past few months it seems to me that each side listens to the other side, sort of just enough to mock it. In order for us to move the debate forward we need to listen respectfully to the worst case scenarios identified by the proponents and opponents of net neutrality and absorb the kernels of truth and there are many kernels of truth from each. I hope the panels are rested today and tomorrow, we'll help us to get to a policy solution we can all agree with. Or, failing that, one that at least won't keep us up at night worrying. I was here this morning and I watched the first panel and it seems to me that was -- it was a very good start. I'm not so sure about the second panel but we'll try to make the third panel respectful in a way that perhaps the second panel, issues came up in the second panel, hopefully they won't in the third. First, I should say, as we always do as commissioners that my comments today reflect only my own opinion, and not the commission's or that of any other commissioner. Before I talk about competing nightmare scenarios let me talk about what we should all have in common. Consumer rights on the internet, should the very least include the four internet freedoms identified by former SEC Chairman Michael Powell in 2004. Consumers must be free to, one, access their choice of leader content. Two, run any internet applications they choose. Three, attach any device they choose to any connection in their homes. And four, receive meaningful information regarding their service plans. These four internet freedoms are, it seems to me, table space. Any set of principles regarding consumer rights on the internet should require all companies and really all entities to ante up. The fourth freedom is particularly important to us at the FTC. Though I'm told that somewhat less important to the folks at the FCC recently. That was a joke. I know you're a geeky audience. Some of the most critical issues regarding the internet involve transparency and disclosure. Will carriers slow down or interfere with applications or services? If so, will consumers be told about this before they sign up? To my mind, failure to disclose such materials, terms or conditions should be considered unfair, deceptive and in violation of the FTC act. Does anybody disagree with that? Okay, we have unanimity. Very respectful. Beyond those four freedoms things get more complicated. Right now, the last mile to the internet is its least competitive. Nearly all homes in the U.S. that get broadband, I think it's upwards of 98%, receive it either from their cable or telephone company. Among those who do have access, many have no choice among providers because only one firm offers broadband to their community. Some fear this lack of competition will translate into reduced innovation elsewhere on the internet. In one version of this utopian world, without net neutrality brand providers connect through the internet both a slow lane and fast lane. In this world, emerging YouTubes and E-musics may have to negotiate these characters -- carriers. (laughter) Sorry Freudian slip -- not a Freudian slip. The carriers could be high toll gatekeepers who would effectively block these new entrance from reaching their own customers at a faster speed which could mean not reaching them effectively at all. Taken to its logical extreme these new companies could be required to negotiate rates and terms with every single broadband provider in every single neighborhood across the country simply to reach the very same consumers that they can reach today. This could turn the internet into a broadband anti-commons where new applications never see the light of day even though their value to consumers could potentially far outstrip costs because the costs of negotiating deals and the costs of the deals themselves with each carrier would likely exceed the profits from the services. In this utopian view of the future the internet simply runs in place, stuck where it is. It may run faster, but the available content and applications stop growing and creativity atrophies because of the inability of startups, especially to reach consumers quickly and inexpensively. My focus on this world because much of the innovation that's occurred on the web has been premised on its special economics where once you get your content or application on the internet you can reach potentially and at low cost billions of people. These economics make possible the phenomenon of the long tail business model. In the long tail business model a product can succeed even if only a small percentage of people are interested in it because so many people have access. According to Chris Anderson who coined this term, many of Amazon's book sales, perhaps as much as a 1/4 or more, come from books so unpopular, that Barnes and Noble doesn't even carry them in their superstores. My guess is the percentage of movies carried by Netflix is probably much higher than that 25%, than the percentage carried by the local Blockbuster or its competitor. This type of business model and the accompanying array of choices that give the internet its vibrancy could be threatened if cyberspace is subdivided by broadband gatekeepers imposing a rash of fees, conditions and surcharges. In response to this vision of misery and wretchedness the broadband providers say this. We have no incentive to treat our own customers so badly. They do have a point. For example, why would Verizon block Google if that would make consumers less interested in Verizon services? This argument is particularly compelling when there is competition among broadband providers. Consumers could simply switch to a provider that sells better services. This notion that consumers buy more of what they like than what they don't also resonates with many at the commission and its implications should not be ignored. But it's persuasive only if the broadband gatekeepers have a good idea of which new internet products and services will succeed. The success of YouTube and other firms like it is really a testament to the power of competitive markets to deliver value to consumers even where that value might be hard to predict. Does anyone really believe that cable companies or certainly FTC commissioners could ever have seen the success of YouTube? I'm not even sure the founders of YouTube knew just how successful they would be. Frankly, broadband providers do not have a history of being particularly interested in or good at developing new applications or content. Whatever their theoretical incentives the real world risk of leaving this decision in the hand of the broadband providers is they may not get it and you could never quantify the harm. Consumers would nevertheless live with a less innovative and less magical content and less magical internet. On the other hand, the broadband providers can present utopian visions of their own. In their utopian world net neutrality would prohibit them from using their own wires and potentially the most pro-competitive ways. Many of these companies also argue that they are spending enormous sums of money to wire communities because of the profits they expect to make from selling combined television, telephone and broadband services over those wires. And if they can charge higher prices for these services they may not be able to justify big investments in broadband. To be sure, there has certainly been a lot of new investment in the last mile. We're currently in the middle of what may be an unprecedented swell of competition between cable and telephony, which have been dominating their own turf for years and which are now on the verge of entering each others' markets. On the telco side, both AT&T and Verizon are spending billions to upgrade their networks with fiber. Also, so that they can sell video in competition with cable companies. For their part the cable companies are working to upgrade their own networks to compete and many are already offering telephone service. I have to have Comcast telephone service. Moreover, each is expanding broadband internet services in competition with the other. At the same time as this is happening, many municipalities are beginning to build sort of semi fast networks as well. For example, in Philadelphia, San Francisco and Madison, Wisconsin, they are using some version of wireless networking in partnership with companies like EarthLink and Google. All of this is good, actually all of this is really great for consumers. And we need to be careful not to create a policy that stops this new competition before it really gets under way. What do I think? Well, like Bill Clinton and Tony Blair, more generally, and Rob Atkinson and Phil Weiser , I don't know if Phil is here today, I know he's on the panel tomorrow, more specifically many of us are looking for a third way. There should be room for broadband providers to compete in the way they want. And there should be incentives for them to innovate but at the same time, my sense is that some form of net neutrality, some restriction on their ability to charge for tiered access may be important and may be very important if we're going to continue to get the types of creative new content and applications from the web that we've marveled at over the past few years. One possible approach, and by the way, let me just make clear, I haven't reached any final conclusions and I think all of us on the commission are trying to think this issue through. We always learn something new when we do these workshops, we always learn something new when we write reports. Michael Sound (ph) has told me that on many occasions -- our head of the Bureau of Economics. But one possible approach would be to use a consent order for the recent AT&T Bell South merger as a point of departure. In AT&T Bell South AT&T agreed not to charge web-based application and content providers to access AT&T's last mile. The restriction included some exceptions, principally relating to a television subscription service that allows AT&T to use its own network in ways that the others could not. It seems possible that there are other services that could be provided better over a private network than over the internet. Perhaps when a carrier can demonstrate that such use is pro-competitive it should be allowed to do so in an unfettered way. In the AT&T Bell South merger, for example, AT&T wanted to use its network to compete in other wise very concentrated cable television markets. Broadband providers could also be allowed to do more when the market for the services that it wants to sell is otherwise competitive. This might be the case if there is a third broadband pipe at the home, whether it's broadband by power line, municipal broadband, broadband by implants to the brain, whatever. Or if unaffiliated companies can provide the same service over the incumbent's own internet connection. Finally, enough of the substance. One question that I've been asked recently is, if Congress ever reaches a stage where it's close to enacting legislation on the issue or even if it doesn't because we have existing telecommunications laws and antitrust laws what agency should be the one to enforce any rules of road? It's been a question I've been asked frequently and very frequently in recent days. Well, look, the FCC is a terrific agency, loads of experience regulating the telecommunications industry. It certainly has a major role to play and I don't think that should change. But with respect to broadband, it's important to remember that net neutrality touches at the heart of precisely what the FTC does. Consumer protection and competition. Lawmakers who are debating net neutrality measures in the coming months need to keep that in mine. They also need to keep in mind that we're an enforcement agency, not a regulatory one. So from my perspective that seems as much of a strength as it causes weakness. Ultimately, picking one agency to enforce net neutrality to the exclusion of another is sort of a false dichotomy, a false choice. There is clearly room for both and probably some room for the Justice Department as long as there is a common carrier exemption. These are just some ideas doubtless you will hear others in the upcoming panel which includes the legendary Alfred Kahn (ph), who has come all the way from Ithaca on this snowy, wintry mixy day. It is full of articulate thinkers with ideas across the philosophical spectrum. The important thing to remember over the next day, though, is for everyone to listen to the concerns of the other side with the same degree of respect that you've listened to me or better yet with the same degree of respect with which you listened to the Chairman earlier this morning. And that way we can start the process of developing a policy that even if it doesn't make every interest group happy, it does benefit consumers and doesn't fulfill anyone's worst fears of misery and wretchedness either. Thank you so much. I'll quit bloviating and then take one or two questions and let you guys go to the panel unless there are no questions, in which case you can go right to the panel. Thank you so much. (Applause)