Difference between revisions of "FTC NN3"

Latest revision as of 16:11, 19 February 2007

• See FTC Workshop Transcript for index

What Is The Debate Over "Network Neutrality" About?

This panel frames the debate over network neutrality and addresses topics such as: The regulatory changes that sparked this debate; concerns raised by proponents of net neutrality; objections raised by net neutrality opponents; and the potential harm to consumers and competition, with or without broadband connectivity regulation.

>>MAUREEN OHLHAUSEN
Thank you, everyone, for getting back so promptly. We are going to move now into our next panel, which is what we're about. I'm Maureen Ohlhausen, as I mentioned earlier, I'm the director of the Office of Policy Planning Federal Trade Commission. Our panelists who are with us today, we have Chris Libertelli, he's the Senior Director of Government Regulatory Affairs for Skype Limited, a global internet communications company and before joining Skype in July 2005, Chris was a senior legal adviser to FCC Chairman, Michael Powell. I'm doing this in the order in which they are speaking and sitting. Robert Pepper, Senior Managing Director of Global Advance Technology Policy for Cisco Systems, Inc. Dr. Pepper joined Cisco in July 2005 from the FCC where he served as Chief of the Office of Plans and Policy and Chief of Policy Development beginning in 1989. Next, we'll have Gigi Sohn, who is the President and co-founder of Public Knowledge, a nonprofit organization that addresses the public stake and the convergence of communications policy and intellectual property law. And then J. Gregory Sidak, a Visiting Professor of Law, Georgetown University Law Center, and founder of Criterion Economics LLC, will follow Gigi. In addition to his time in private practice with Covington and Burling (ph), he also served as Deputy General Council for the FCC and Senior Council and Economist to the Council of Economic Advisers. I also wanted to mention that all of the panelists' biographies are in your materials so they have many more credentials and I encourage you to read the bios. Just a couple of small details. Again, I encourage people to write out their questions and to hold them up and we will have staff come through and collect those and they will bring them up for me to pose to the panel. I think, with that, I'll just say, it's pretty obvious from the description and agenda, this is meant to be a framing panel much like this morning's panel to define some of the parameters of the debate over what is network neutrality, why are we talking about this at this point in time. Who is in favor of it, who is opposed to it? What are the possible harms of either having it or not having it? So I really appreciate all of our panelists joining me today to address these important issues. So with that, I will start with Chris.

>>CHRISTOPHER LIBERTELLI
Great, thanks. Good morning. Thank you Maureen for inviting us to be part of this important FTC panel. I encounter various levels of awareness of what Skype is. So what I thought I would do is I'll just say a brief word about the salient aspects of the software before getting into the policy issues that Maureen has asked to us address. First off, Skype is a software company, not a tell communications carrier. We employ software engineers, voice compression experts; use ability designers, all of whom are dedicated to making the hard easy and removing barriers to more natural forms of communications. The Skype community currently stands at 171 million users in just about every country on the planet. If Google's goal is to organize the world's information, it's Skype's goal to enable the world's conversations. Like most good innovations, they come from the bottom up, from our user community. Skype offers various products including the ability to make Skype to Skype calls on the broadband internet, to make video calls, to transfer documents via Skype, or to send instant or text message. Skype is not simply about voice competition. But a range of features that cannot be found on the phone network. Though our products are many our software shares a few basic characteristics that are relevant to the debate over net neutrality. First, its Skype's software that enables users to connect to each other. We do not operate any centralized, any significant centralized resources. Second, Skype users purchase broadband Internet connectivity separately and in the U.S. That means largely from cable and DSL providers. In this way Skype stimulates the demand for broadband. Third, we develop software for various operating systems including Windows, Windows Mobile, Mac, Linux, et cetera. We've a growing ecosystem of partners and an open API program that allow our partners to extend the Skype experience on the internet. We develop software that operates on a multiplicity of devices including mobile phones and PDAs. So this brings us to the question of this panel. What is the debate over network neutrality about? For Skype, network neutrality is about protecting our user's ability to connect to each other whenever and wherever they want. We support net neutrality because it embodies the policy of de-centralized innovation. For us, net neutrality is not a theory but a concrete example of what's possible on the internet when entry barriers are low. The founders of my company began in a basement bar in London and were able to invent a way for a global community of users to talk to each other free on day one. Such a feat is hard to imagine if they are required to cut a deal with ever incumbent in every country where people are using Skype. Without a neutral network they would have to spend a great deal of time on planes to achieve what they have achieved. So in a sense, net neutrality is about whether you want innovators spending time on planes establishing commercial arrangements or do you want them spending time innovating and thinking up of new, innovative ways of delivering things like free phone calls. In other words, open Internet networks keep entry barriers low. None of the competition policy issues in the net neutrality are new. The use of market power to leverage from one market to an adjacent market is certainly not an unfamiliar problem for this agency. What has changed is that we're working against the backdrop of changed law, in particular, the Supreme Court's Brand X case, which removed internet access from Title 2 of the Communications Act. Whatever the merits of treating cable and DSL internet access as a noncommon carrier this decision has pushed us into a brave new world. An uncertain world where this agency may have newfound jurisdiction but where government policy in our view has become dangerously unbalanced. This imbalance appears to us to emphasize the interest of network owners over all other competing concerns. For Skype, network neutrality rules are designed to reset that balance. So that network owners and software companies serve the interest of consumers. We try to be humble about this issue. Recognizing that Skype and network owners are part of an interconnected, internet ecosystem. We support and share the goal of increasing broadband penetration in America. Applications like Skype provide consumers with another reason to subscribe to broadband or purchase a new computer or buy a PDA. If government policy becomes too myopic, too focused on the interest of network owners we put at risk of all the innovation and software development that's allowed the internet to thrive. In short, we risk building an internet bridge to nowhere or at least to only the places the network owners allow you to go. It seems to us the competition policy is advanced when there is competition at the software layer, for services like voice or video. And at the physical layer between wire line and wireless networks. In this regard, we take (inaudible) to do no harm seriously. We understand that there is an impulse for regulators to rely on markets to self-correct and solve problems in advance of government solutions. For example, she has emphasized the need to focus on actual anti-competitive conduct bi-network owners

>>SPEAKER
So lets take for example, the market for wireless broadband or 3-G services. We offer two examples designed to allow you to test assumptions surrounding whether markets will naturally self-correct for anti-consumer behavior. First, all of the wireless carriers that offer 3-G services specifically prohibit the use of those internet access services for things such as VOIP, peer-to-peer or "Heavy machine-to-machine connections," even as they are advertised as unlimited. So when we hear that wireless broadband is a competitive threat to the cable DSL duopoly, that possibility rings hollow for us because the major carriers have contracted with our users in a way that does not permanent Skype on their networks. This kind of concerted conduct is set against a backdrop of a wireless market with HHI values on average 2700, well above 1800 which the FTC and DOJ consider highly concentrated. Second, because voice has become untethered from the underlying unlike access network, the decisions this agency makes will have profound effects on competition in downstream markets like, for example, the markets for 3-G devices. Take, for example, the Nokia E-61. This is a device that first arrived in Europe. However, in the U.S., it was presented to consumers as the E-62. A crippled version of the E-61 that made it impossible for users to access the Y tech connectivity in the phone. In the words of one MSN columnist Gary Krakow (ph) "What some carriers fear most is the E-61's ability to handle voice calls when you're near a friendly wireless network." That's why we won't see WiFi on the E62. Relatedly, the Apple I-phone was recently announced but as Blair Lavine (ph), an analyst for Steeple Nichols (ph) observed, the true service breakthrough for US consumers will come when the market for such unlocked phones develops and manufacturers offer pure IP devices that is allow for the provision of voice as a mobile web application. This is not to say that wireless carriers do not face unique challenges in managing their networks. They do. Differentiating services and charging more for users who use more bandwidth can be pro-competitive but we encourage policy makers to scrutinize network management practices so that they are not used as an excuse for otherwise anti-competitive behavior. So observers in industry reps have raised a number of objections to network neutrality rules. When you hear arguments that net neutrality will destroy the deployment incentives of network operators or reduce competition, we ask that the FTC consider whether those claims are exaggerated. Allowing network owners to discriminate against software-defined competition is the worst way to build up broadband and represents a return to a system of implicit support that Congress ordered removed from the old phone network in 1996. When we hear opponents argue that net neutrality should be applied to the internet companies themselves, please consider whether this is really an effort to change the subject away from the market power of these operators. Consumers can switch search engines in a snap and can choose from a nearly unlimited number of voice applications like Skype, but they lack this kind of frictionless choice in the market for internet access; and it is this limited range of competitive choices that underpins our urging rectors to adopt reasonable network neutrality safeguards. Finally, when you listen to rosy presentations of competition in the packet for internet access we ask that you keep in mind according to the FTC's latest numbers, 95% of all Americans buy their internet access from cable or DSL providers. When operators tell us that they haven't enforced the restrictions that are found in the terms of service in the wireless market that I spoke of, we wonder whether a policy of trust me is really any protection at all given the incentives that are present in this market. So in closing, our request to this agency and policymakers is to adopt a policy that's balanced, tools such as increased disclosure, or language along the lines of the AT&T merger condition are good starts. Competition will be enhanced, and consumers will have more choices, if government adopts a net neutrality approach that respects the interest of network owners and equally the interests of innovative application providers like Skype. Thank you and I'll be happy to answer any questions.

>>SPEAKER
Thank you so much Chris, I just have a quick question to follow up on. You were mentioning entry barriers being low with the end-to-end principles that was run you can reach anyone. One of the issues that some network neutrality opponents raise is that, will that rule benefit the incumbent who have already gotten on in this world and built up a base and an infrastructure, and that for providers, new applications providers, who haven't, you know, built up something that can give them a certain level of quality of service, will be prevented from purchasing that, if it's, you know, seen as discriminatory and I wondered if you have any comments on that?

>>CHRISTOPHER LIBERTELLI
This is an argument that I think is a bit upside-down because if it were true I think you would expect us to be against net neutrality. Our business is built on the idea that once you distribute the software onto the internet, users can connect to each other. And in the absence of entry barriers or discrimination or intentional degradation of our traffic those users will continue to be able to speak to each other and use all the functionality of the software. Net neutrality is not about locking out the next innovation. I think, indeed, it is the contrary. It's about creating the conditions so that people who are developing software can reach their users, and we operate in a highly competitive environment. We're one innovation away from being replaced by another entity that can develop software in a borderless environment with low entry barriers. We try to apply the same principles to ourselves and say, you know, we're fine to slug it out in the market and compete based on the features of our software as long as there is an even -- a level playing field for competition at that layer.

>>MAUREEN OHLHAUSEN
Thanks, Chris. Now, we'll move on to Bob Pepper.

>>ROBERT PEPPER
Thank you, Maureen and thanks for the opportunity to be on today's panel. I'll be making three key points. Next generation services require intelligent networks. It's a false choice to say that we need innovation either on the edge of the network and applications or that we need innovation in the core. We need it in both places. Second, there is no clear definition of network neutrality. We've already heard a little bit about that today. Third, the best way to address potential competitive and consumer problems is to first determine the extent to which a real problem exists, then to weigh the benefits and cost of alternative approaches, to preventing and remedying the problem. I conclude, at this point, weighing the facts and the potential benefits and costs, new detailed Ex ante regulation would be counterproductive and instead the FTC should play a leadership role in protecting consumers and competition by exercising its authority, experience, resources and expertise, on a case-by-case basis. Before addressing what is network neutrality and what policymakers should do about it it's important to understand the network that some want to make neutral. The internet is at a transition point as we enter the second phase commonly known as web 2.0. Services like web browsing, email, instant messaging, voice over IP, and low quality streaming video do not require high broadband speeds and with few exceptions can actually tolerate interruptions and short delays in transmission. Some networks that merely send packets along and randomly drop packets during periods of congestion that have been mostly sufficient to handle these types of applications. But they are not going to be sufficient if we realize the potential, the full potential of web 2.0., which will focus on new applications like high quality video, user generated rated content, multimedia applications and these new applications are going to require ubiquitous broadband internet where any consumer can easily use any standard space device to access and use content applications of their voice in multiple locations whenever and wherever they want. Enabling these services requires an intelligent network that can recognize and can figure intelligent devices without your needing to be an IT Specialist. In addition, different services require different transmission characteristics such as speed, latency, jitter, symmetry, and bursting insert capacity that John talked about earlier. For instance voiceover IP does not require high speed but it does require low latency and very little jitter. Video downloads on the other hand need high speed that can handle some level of latency and jitter and new technology, such as tele-presence that provide a real life experience for virtual in person meetings requires high speed, low latency and symmetry. Complex devices and networks will work together to make it seem simple to consumers. Simplicity in the foreground, but its complexity in the background. Intelligence in the network is necessary not nearly to allocate scarce bandwidth at times of congestion though this is important. It's also necessary to identify, configure, authenticate and secure devices applications and systems. The notion that we must choose between intelligence at the edge or intelligence in the core is a false choice. So what's network neutrality? As we've already heard, the term has never been clearly defined. It means different things to different people and therefore has become very subjective and is probably meaningless, though it's a great bumper sticker. As the debate over the issue, network neutrality has evolved, I think actually it's analytically useful to focus on four sets of questions that have emerged, and that people have labeled at net neutrality. First, the first is whether the internet is an open and interconnected network? This is sometimes called the end-to-end principle. Can I go where I want and get what I want over the internet without being blocked, steered or degraded? The answer first came from the high-tech broadband coalition's connectivity principles in 2003, which articulated the internet's version of consumer interconnection rights. Specifically, and John already raised this, consumers should have the access, the right to access any legal content, run any legal application, connect any non harmful device to the network and in addition my mind perhaps most importantly have sufficient information to make informed decisions about what to buy. Markets after all work best if consumers have that kind of information to make informed decisions. These connectivity principles were embraced by FTC Chairman Powell in 2004 and formalized by Chairman Martin and the entire FTC in a policy statement 2005. Since then, I think there has been wide agreement that the connectivity principle should be followed. The debate is whether or not Congress should codify them or, if necessary, congressional action is necessary to enforce them. The second group of questions are those surrounding whether service providers may charge different prices for different levels of service or whether flat rate access is part of the nature of the internet. Well a few traditionalists still advocate a flat rate for very high speeds The fact is, I think there is general agreement for the most part to recognize that different levels of services and different price points is pro consumer and pro-competitive. The third question is whether all packets on the internet must be treated exactly the same. This is the nondiscrimination issue that we talked about or heard about. The problem with nondiscrimination is it does not recognize that treating different packets differently is necessary for the effective deliveries over many services. As more real-time interactive services dominate internet traffic hit be more important to differentiate among packets. It's important to note, and I underline this, that differential treatment does not have to equal anti-competitive treatment and this is a really important point. Along these lines, a pure nondiscrimination requirement as some people have argued in Congress, goes way beyond even the traditional FCC common carrier regulation in section 202 which states it should be unlawful for any common carrier to make any the unjust or unreasonable discrimination in charges practices, et cetera. A pure nondiscrimination requirement would not allow for reasonable differences treatments in packets based upon different natures of services of the packets themselves. And even if nondiscrimination requirement applied only to types of traffic, there would still be constant questions of whether a provider was receiving the same service at the same price, which would inevitably lead to tariffing of internet services. The common carrier world learned long ago that tariffs like this can lead to government-managed cartels keeping prices high and that is the world we live in in the long distance business until we finally got rid of tariffing. The last set of questions on net neutrality concerns who can be charged for what service and broadband connections. Should internet access be funded solely by consumers or can the cost be shared with content providers and application providers. Well it's clear that broadband's access providers cannot unilaterally impose charges on the third party, it would be very difficult. Several legislative proposals would make it illegal for third parties to pay for improve quality of service even if they wanted to do so voluntarily. Web 2.0. services have classic characteristics of two sided markets and to prohibit these kind of business relationships from developing could seriously harm consumers. Sender pay services or advertiser-supported services have long provided consumers with more choices at lower prices. To prohibit third party payments in other areas of communications would have prohibited toll free 800 services or advertiser supported television. Worse it would socialize internet pricing effectively forcing light users to subsidize heavy users. So what are the problems we should really be focusing on? For the most part, I think there is really two key problems that are wrapped up in this debate. First is anti-competitive conduct by broadband access providers, right? If broadband providers have sufficient market power, they can leverage the market power to restrict competitor's access to consumers or raise costs that would lead to higher prices for consumers. Alternatively they can use control of the physical access work to deny applications and the application competitors, access to certain services or functionalities, thereby foreclosing portions of the market. These are classic problems associated with undo market power in any market and they are not unique to the internet or broadband. The second concern is really whether net neutrality regulations designed to prevent anticompetitive conduct could limit or prohibit consumer well fair enhancing network functionality and management as well as discourage innovation. In other words, regulation is not costless. Network facilities are extremely expensive to construct. You'll hear more about this. Even in situations where physical networks are adequate, the cost to upgrade electronics and other functionalities is nontrivial. Regulations that can strain what services and network operators may offer in prices and terms of condition of services could constitute a strong disincentive to invest in functionality. There is a natural tension therefore between the goals of preventing anticompetitive behavior and providing incentives for consumer welfare enhancing innovation. Strict network neutrality regulations may eliminate the potential for any competitive conduct. On the other hand, the same regulations could also eliminate deployment of pro consumer, pro competitive and pro applications and functions. Any attempt to resolve the tension needs to weigh benefits and costs of various approaches. The case for intrusive net neutrality regulation is predicated on an assumption that network operators have undue market power and yet there is plenty of evidence that these markets are functioning much more competitively in terms of prices and service and functionality competition. Consumers are getting more services at lower prices. But there is more competition that needs to come. In addition to date, there has only been one case of anticompetitive conduct that could harm, that harm competition and consumers that's been brought to the FCC and this of course was the Madison River case which was quickly remedied by the commission in 2004. Since then there have been no formal complaints of broadband access providers blocking, degrading, and inhibiting any internet application nor have there been allegations of ant competitive conduct. Rather than debating whether theoretical problems require theoretical regulation, it would be much more productive to examine whether current laws and regulations are sufficient to handle anti-competitive conduct problems if they arise while maintaining an environment that encourages innovation and network facilities and function. Without significant new detailed Ex ante regulation on network neutrality, case-by-case enforcement of access principles and anti-competitive conduct is available to the FCC and the antitrust enforcement agencies including the FTC. Post facto enforcement is superior to Ex ante regulation on several accounts. First, it ensures the costs of regulation are limited to the benefits. Second, in a rapidly changing technological environment it's difficult to narrowly target Ex ante regulation to future harms you can have overbroad regulation. Third, should widespread anticompetitive conduct arise later, there is no technical or business barrier to subsequently impose regulation. And fourth, new Ex ante regulation is likely to inhibit investments. Therefore, the absence of a significant demonstrable problem and weighing the benefits and costs, new detailed regulation is not warranted. But this is not to say there is not an important role for monitoring and oversight including by the FTC, which plays a crucial role in the superior case-by-case model. Identifying and assessing anti-competitive conduct, performing analyses of competition and market power and formulating appropriate remedies is part of your core mission here. Likewise, the FTC has a historical consumer protection mission which is appropriate for enforcing -- for ensuring that broadband consumers have accurate information to make informed choices. Therefore, the final false choice I would like to debunk is the following. To say there is no need for new detailed regulations does not mean that there is no role for government to protect consumers in competition. Rather, the right answer is to identify an appropriate and balanced approach that will protect consumers and competition as well as innovation. And meet the benefit cost test that is all too often missing in regulatory debate. The FTC has the authority, resources, expertise and institutional experience to play an important role addressing potential problems in the broadband access market, without new detailed Ex ante regulation. FTC leadership in this area can ensure the vision that we all have for ubiquitous broadband access becoming a reality that we heard about this morning. Thank you.

>>SPEAKER
Bob, actually let me follow you on your point. One of the issues that gets raised by people concerned about network neutrality is that consumers won't be able to know what they are getting. They won't be able to detect discrimination or it would be easy to say it's happening somewhere else in the network. It's not your broadband provider. It's somewhere else. There will be a tacit discrimination. But it won't be detected so perhaps harm is already occurring and it's just difficult to detect. I was wondering if you could perhaps comment on that.

>>SPEAKER
That is a technical detection that's an issue. It's an issue whether or not there is Ex ante prohibitions or whether it's a case-by-case approach but there are techniques that consumers actually have readily available to them, for them to test their own bandwidth and performance and latency between, you know, the home, or the office, and the first pop, right? So those techniques are actually relatively available. The problem is that depending upon the service you're trying to download, the application that you're using, you may be going through two or three hops or as many as a dozen hops across the internet. When you go across multiple hops across multiple networks it's more difficult for a consumer to know. But the standard of relationships in terms of what's called hot potato routing and cold potato routing which we can talk about among the networks and the applications providers minimizes or attempts to minimize the number of hops. That's number one. Number two, a lot of these large operators, including Google, that's made enormous investments in big server firms, to bring content closer to consumers, or economy with their cashing servers, bringing content closer to consumers, reduces the need to go across multiple hubs. Finally, if consumers are not getting the performance they need whether it is Ex ante or Ex post enforcement. The large service provider application providers, you know, Chris' company, have the ability to identify where these problems are. In fact, the FCC received a complaint about Madison River, because a consumer couldn't get service from Vonage, complained to Vonage. Vonage figured out where the problem was. So it's not as opaque as, you know, some people would want to argue. But it's not completely transparent. And that's why I think it's important that consumers have the information available to them to help make those decisions.

>>MAUREEN OHLHAUSEN
Thanks, Bob. Now we turn to Gigi.

>>GIGI SOHN
I would like to stand up. Sometimes it's hard to see me. Is there something you want me to move?

>> MAUREEN OHLHAUSEN
Just hit enter.

>> GIGI SOHN
Good morning, everybody. I love Bob Pepper. He's my colleague at USC, but I disagree with every single thing he says. That's not actually true. I want to thank the commission and Maureen Ohlhausen, you guys have done a fabulous job, we're looking forward to your report. You're not going to have much of a life for the next couple of months. I feel your pain. But we really appreciate being asked to speak at this conference. I'm here to give a consumer perspective on the net neutrality debate and what it's about. I think one of the things that proponents and opponents on net neutrality will agree upon over the next two days is the internet is the most open and robust engine of innovation commerce creativity and democratic discourse that this country has ever known. But what we won't agree upon is how it became that way. We believe that the internet is what it is today because of an FCC requirement that the onramps to our communications system be made available to all content applications and services on a nondiscriminatory basis. Simply put, the net neutrality debate is about that nondiscrimination requirement and you know Bob setup a lot of straw men talked about a lot of different definitions but this is what it's about, nondiscrimination. As Chris told you, That requirement was repealed by the brand X decision and its FCC progeny. Rather than new regulation, net neutrality supporters like public knowledge they seek to have that band on discrimination reinstated so the proprietors of the onramps of the internet will not be able to use their market power to favor services and content in which they have a financial interest like video, gaming, and voice over IP. This closed cable-like model harms consumer choice and their ability to use the internet without interference of gatekeepers. Raise your hand if you like your cable company. I thought so. Jay, I'm not asking for a response. (Laughter) The market power is clear. Cable and Telco's are still dominate providers controlling nearly 97% of the residential broadband market. Other technologies barely make a dent. In any event, are not substitutes for DSL and cable modem service. Even when a consumer has a choice, of DSL and cable the switching costs may be prohibitive or unattractive, particularly if the service is bundled with other communications services. While broadband wireless is held up, as a great savior of competition professor Tim Woo (ph) recently released paper and he'll talk about it tomorrow, demonstrates that instead it's a closed system where music, movie and game downloads is streaming and use of voice over IP can be reasons for termination and devices that attach to the network are hobbled or prohibited by certain carrier restrictions. I think Chris really covered that land very well there so I won't talk anymore about it. But let me address for a minute, the FCC's recent internet access status report, which purports to show increased -- significantly increased access to broadband as well as increased competition. Its methodology is completely and totally flawed. I don't think it should be even taken seriously. And there's two major flaws. Two of many. The first is, it that it defines broadband at a ridiculously slow speed. 200 kilobytes per second. I mean that definition should just be thrown out of the box right away. Second, it inflates the amount of competition by looking at zip codes. So if one person in a zip code has access to two providers or three providers they assume that all consumers in that zip code have that access. So I have access, three providers are CN I know not everybody in 2008 has access to that. It's completely flawed. I think a better assessment of the broadband market and the potential for discrimination was made in a June 2006 report written by Chuck Goldfarb for the congressional research service. And I quote. "To the extent that the broadband network providers seek to maximize their revenues, for what they perceive as the killer broadband applications they will have an incentive to build operate, and manage their broadband network. With only limited alternatives to the cable and telephone broadband dualopoly, for the foreseeable future, and with the cable and telephone companies both pursuing largely the same business plan, the broadband providers might have both the incentive and ability to exploit their control over access to end users to restrict competition and harm consumers. So now I talked what the debate's about. It's not about whether consumers should be charged more for greater bandwidth and fatter speed. Of course they should. Just like today. It's not about whether content and service providers should pay for the ability to get to their customers faster. They already pay for the originating and terminating ends. This is about whether the last model provider will deny them the opportunity for better service, so as to advantage their propriety services. The debate is not about making broadband access a dumb pipe. We do not oppose broadband providers owning applications, content, and services that flow over or engaging in legitimate network management to ensure the proper operation of the network. Every legislative proposal had an exception for legitimate network management. We just don't want the providers to favor those services or other services in which they have a financial interest. It is not about the debate is not about a new, undefinable regulatory concept. Nondiscrimination appears over 60 times in the communications act. Indeed at least one broadband provider, Verizon, has taken advantage of the FCC's program access rules which require cable operators to make cable programming available to competitors on reasonably, nondiscriminatory biases. This regulation has been going on for 14 years. It hasn't led to tariffing. Hasn't led to price regulation. I mean, that is, it's a big scare that the program access rules have been self-perpetuating. They have worked really really well. Seemed to work well for the broadband providers. In addition, last year, cable operators sought to ensure that the telephone companies did not discriminate against their voice over IP services in the draft-telecom bill. As I said, Dr. Pepper set up a couple of straw men, intrusive net neutrality regulation, detailed regulation, those have to be choices here and they are models. I think A good place to start for the definition of nondiscrimination is with AT&T, bell south merger conditions. In which AT&T agreed not to, "provide or sell to internet content, application, or service providers, including those affiliated with AT&T Bell South, any service that privileges, degrades, or prioritizes any package-transmitted base on its source, ownership or destination. So there goes the argument that you can't define net neutrality. That's a pretty darn good definition. What should the FTC do? At a minimum, we believe the FTC should investigate and act on allegations of anti-competitive conduct by broadband internet access providers. Filed by consumers, content service and applications providers. As Chairwomen Majoras and Commissioner Kovacic, pointed out in public statements the FTC has already acted in cases involving discrimination at the infrastructure layer by internet access providers. We ask that this jurisdiction be extended to the applications layer of our communications system. Because the stakes are so high, for those content applications, and service providers that are discriminated against and for consumers, these complaints should be acted upon in an expedited manner. Secondarily, the FTC should require broadband access providers to disclose in simple and non-technical terms, their broadband access and usage terms, including, one, actual level of bandwidth, two, the amount of latency, three, any limitations on consumers' ability to access services and content of their choice, and four, to what extent certain content and services get preferential delivery. I got most of this from the Phil Wiser (ph)/Ron Atkins (ph) paper which is quite good. The FTC should bring enforcement actions against those broadband providers who do not disclose or will misrepresent. Disclosure should not be however, the only or even primary tool for protecting consumers, as it is cold comfort to those consumers who have little or no real competition for whom the cost of switching service providers is high. It can help to complement the FTC's authority over anti-competitive market practices. So in closing, I want to make clear that though we believe the FTC can be helpful in preserving net neutrality any activity it undertakes pursuant to its current authority will not be sufficient to preserve an open internet. The FCC is better suited to act quickly on complaints and we will continue to press the agency and Congress to clarify the FCC's authority to address discrimination by broadband providers. FTC and FCC often have current jurisdiction and the public would be well served if that were the case as well. We would also support Congress giving the FTC specific enforcement responsibility over discrimination claims. Similar to that provided in HR 5417. The internet and nondiscrimination act of 2006 which was reported out of the house judiciary committee last Congress. Thank you. I look forward to your questions...

>>AUDIENCE
Thank you. I have a question for you and you can answer it there or at the podium. Your preference. I understand you believe that competition in the last mile is not sufficient at this point. Is there, at what point do you think competition at the last mile would be sufficient to overcome concerns about discrimination, or do you think that it's just so much of an inherent problem that it's not sort of the number of level, the number of providers, it's, you know, the inability of consumers to detect or other issues.

>>GIGI SOHN
I just think we're so far away from a competitive market, that it almost -- it's almost not even worth talking about. Again, to the extent that there are any technology that's substitutable is just cable and DSL. I can read off the numbers of the percentage of the market that some of the satellite and fixed wireless broadband have, it's minuscule. Under 1% each one. So it's -- it's hardly worth talking about but you have to get to a place where the different services are substitutable. Nobody is going to given their DSL or cable modem service for a Verizon EVDL which won't let you download 3/4 of the things that consumers want. I just think we're a very very long way from there, and, you know, when we get there we will know it but we're not even close...

>>MAUREEN
Thank you. OK, now we turn to Greg.

>>GREG SIDAK
Thank you, I would like to present more of an economic perspective on these issues. And I tell you why I think much of the views that have been expressed so far this morning, I think, are missing the big issue here. I do not I do not think blocking of content is the serious issue here. Network operators provide a complementary service to internet content. They do not have an interest in reducing the supply of a complement The one exception would be something like VOIP, which competes against the network operator's voice services, all the major network operators have pledged not to block VOIP. The one instance in which it has occurred is a Merrill telephone company, and that's not a set of facts in which we can extrapolate, to the behavior that would be followed by network operators supplying service to the vast majority of Americans. A year ago, we didn't hear proponents of network neutrality say much at all about the wireless industry. It's interesting to me this morning, to hear that that is now the new focus of the blockage issue. Obviously, there are very different network architecture considerations for wireless note works than for wire line networks. I'm not a network engineer so I can't answer the questions that you might have about that but I think there is a lot more digging that has to be done on that before we can seriously believe, in markets in which there are four wireless competitors that we have a problem. If there is a kind of business conduct that's simultaneously pursued by firms in a competitive market the presumption is that that is a business practice that is efficient because it's what you see in a competitive equilibrium. The real issue, I think, in the network neutrality debate is revealed when you ask, what are the interests of the major adverse economic players in this market? Follow the money. Who has an ox that will be gored through the enactment of network neutrality regulation. I think here the big issue and the one that's not been adequately addressed yet this morning, is the increasing conflict between network operators and internet content and portal providers. Because of the radically different business models that they imply, network operators traditionally have been subscriber-baste services The internet companies give away a lot of stuff for free because they are advertisers for business models. What will be the ability of network operators to gravitate toward a more advertiser-based business model in the future? It is strongly in the interest of the incumbent internet content providers and portal operators to try to limit the ability of very large potential competitors from getting into their same kind of business model and competing for the very substantial amount of revenue that's generated by search, internet search-related advertising, for example. So, it's useful, then, to also ask, what specifically are proponents of network neutrality regulation asking for apart from the blockage issue, which is not the major concern. What they have been asking for, for the past year, is to prohibit by enactment of law, a transaction between a network operator and a supplier of internet content. Four, prioritize delivery of packets. This is the access tiering transaction. These transactions don't really occur right now. This is all a hypothetical argument. The proponents of network neutrality operation, and I'll take Larry Lesig (ph) of Stanford as the principal advocate, do not have a problem with end users paying for prioritized the delivery of content. They don't have a problem with network operators and end users contracting for prioritized delivery. The problem they have is with network operators directly contracting with suppliers of content. Why do you need to have a Federal law prohibiting one kind of transaction when you're perfectly happy with the other? The reason, if you follow the money, is to look at the viability of the advertiser-supported business model. In the event that suppliers of content or internet portal services have to start competing for prioritized delivery of their content, in a world in which there are increasing bandwidth constraints. If there are no bandwidth constraints this is an unimportant issue. This is not worth talking about. If there are bandwidth constraints than priority of delivery matters. If you're an incumbent internet content provider, and you do not want to see other firms enter your very lucrative sandbox, you would like to prevent their ability to differentiate their services through prioritized delivery. So it's important to realize that there are potentially anticompetitive effects of enacting a prohibition on access tiering. A lot has been said about whether the broadband access market is competitive. The FCC, the expert government agency in the area, determined in 2005 that it was. I personally find it very hard to believe that could you look at the data in the United States and conclude that we're moving in the wrong direction in terms of broadband access competition. Broadband lines and broadband usage is skyrocketing in which country. Prices are going down, so we have privatization evidence of a competitive market. Falling prices, increasing output, and we have announcements by firms like Sprint that it will build a WiMAX network nationwide by 2008. In addition, you have Google itself demonstrating the feasibility of WiFi mesh networks as a competing access technology. In Mountain view, California, Google provides free WiFi broadband access to 72,000 residents at a cost of about $1 million. For about $14 a resident or roughly, the price of a large dominos pizza, Google has built a WiFi mesh network, which, of course, it funds with its advertising revenues. The executive at Google in charge of this Project said they don't have an intention of going around the country and building WiFi mesh networks but they wanted to show it's possible to have more broadband competition. Well, if that's the case, then it seems to me that Google has just removed one of the two principle arguments that have been made in favor by it for network neutrality regulation. The absence -- the supposed absence of competition in the broadband access market. The other justification of course that's been presented traditionally for network neutrality regulation is that we have to promote innovation on the edges of the network as opposed to innovation within the network. I completely agree that innovation is an important consideration, but it is a completely amorphous concept argument so far in the network neutrality debate. The one piece of advice I would give the FCC or other policymakers in this area is to define clearly what the criteria are that you're trying to evaluate here. Obviously, consumer welfare is at the top of the list. I think it's consumer welfare with respect to broadband access. As well as consumer in the consumption of internet content. In addition to consumer welfare is innovation. And of course innovation over the longer term plays into the welfare of consumers. But is there any reason to believe that there is a shortage of innovation on the edges of the network? Indeed, how could we ever prove there was or wasn't? In this respect I think it's interesting, just to look at a timeline N. December 2001, Larry Lesig(ph) declared the internet revolution has ended just as surprisingly as it began. In February of 2005, you YouTube released its first video. In 2006, testified on a panel I was on in front of the Senate that access tiering would reduce innovation, kill innovation at the edges of the network. October 2006, YouTube was purchased by Google for $1.6 billion. So there was no shortage of innovation on the edges of the network there. Bear in mind, the arguments put forth is the mire prospect of these axis tiering transactions are so threatening, unless there is congressional legislation to prohibit them, those innovators in garages in Palo Alto, they are just going to fold their tents. Obviously, the people at YouTube were not intimidated by that prospect. So I would conclude just by saying, it's important to try to separate the pure hypothetical harms that might occur from the problems that have been observed and remedied. And also, to try to get some specificity in this debate what is it that the economic interests are advocating or opposing? Access tiering, I think, is at the heart. Why? Because it implicates the fundamental conflict between two business models that represent the true convergence of traditional telecommunications and internet services.

>>AUDIENCE
Thanks, Greg. I have a question. You were talking about the broadband providers maybe changing business models to more of an advertising base, where they can kind of get some of the costs of the service paid for by the content providers rather than by the consumer. Directly. And, one of the questions I have in that regard, is, this morning, one of the speakers talked about concerns about the ability of broadband providers, find out more about consumers, that they will actually be able to extract more from the consumers based on knowing a lot about them. These things to me seem to be you've got a business model coming out one way and this tension that the broadband providers may have an incentive to get money from the content providers but someone suggesting they have an equal incentive to try to distract more money from consumers. I was wondering if you had any views, do these things make sense or these tensions between incentives.

>>GREG SIDAK
Let me react to that. Number one, as I think Bob Pepper pointed out, it is not price discrimination to sell two different products at different prices. If one product is a higher priority delivery packets than another and the faster service is more expensive, that's not surprising. That's not price discrimination but for saying of argument suppose that the product is completely identical in the two instances, and a different price is charged for different customers, is that a problem? Well, if I call my travel agent this afternoon and say, I have to fly to Brussels tomorrow, can you get me on a flight, I'll pay $8,000 to get a ticket. If I booked that flight six months in advance I would probably pay $1,100, something like that. How many airlines are there flying from Dulles to Brussels, or some other hub in Europe from which I can connect? Obviously, we observe price discrimination in competitive markets all the time. If I go into Barnes & Noble and I buy the hardbound copy of the next Harry potter book for one of my children, I'll pay more than if I wait until the paperback comes out. Again, it is a pervasive phenomenon. So price discrimination per say is not something that is unique to firms with market power. Any firm that has some slight downward slope on its demand curve, may have the ability to engage in differential pricing. If the other conditions that economists document are satisfied. With respect to consumers of broadband access, I'm certainly less worried about the network operator exploiting a dossier of personal information about my use of the internet than I would be about Google doing the same thing. If any of you have read "The search," a very good book about Google, there is a phrase that the author uses called the database of intentions. It's a remarkable concept. Every click, every search, every pop-up he's clicked on, it gets stored. That's what creates value in terms of internet search-based advertising. Because when you type in a word like Casablanca, up will pop something about Humphrey Bogart city in Morocco. Why? Because your history of internet searches, your visitations on the web, define something about who you are and what interests you. I'm a lot more concerned about the potential abuse of that database than I would be by -- far less concerned than I would be with respect to some network operator coming close to acquiring the same capability. The last thing I wanted to say about price discrimination. There is a tension here; we have the welfare of consumers who are not yet on the internet as broadband subscribers. What is the profile of the marginal consumer of broadband? Economists talk about marginal and info marginal consumers, those are the people already consuming something and won't walk away if the price goes up The marginal consumer is person that's right on the edge between buying and not buying a product. In the case of internet broad-band access, profile of the marginal broadband consumer, the person who haven't subscribed yet, lower income, less education and more likely to be of a minority or a racial ethnic minority. Traditionally, we like to bring up the welfare of the marginal consumer. We do that if it's more affordable to people to subscribe to broadband networks. That's one reason why price discrimination is a good thing in the sense that it allows the price charged by the consumer to come down because somebody else who values the highs highly, like I would value the ticket to Brussels tomorrow if I had to get there. It helps to pay the common cost of running the network. That objective, that consumer welfare objective, is something that under-girds all tell communications in the last century. It's fundamentally quite different from the objective of trying to promote innovation by the next billionaire's in Palo Alto.

>>MAUREEN OHLHAUSEN
Thanks. For questions, please write them on card and give them to staff. Okay. We've raised a lot of issues and I know there are strong feelings but I want to start with the baseline issue which is about the FCC's connectivity principles. Bob, you mentioned there is widespread agreement on that. What I wanted to query the panelists about are, is there widespread agreement and is it as a floor or as a ceiling?

>>BOB
I obviously agree.

>>MAUREEN OHLHAUSEN
You made that comment.

>>GIGI SOHN
We think there needs to be a fifth principle and that's a principle that prevent nondiscrimination. It's not enough to say consumers shall have access to all content The consumer shall have access to information about this service which they are not getting The consumer shall be able to attach any equipment to a network which, as Chris mentioned so well, is not happening in the wireless space. I can't remember what the fourth principle was but that doesn't guard against the possibility that a network provider would favor certain applications, content and services, particularly that which has a financial interest or that which it actually owns outright.

>>SPEAKER
You do agree --

>>GIGI SOHN
Yeah, I'd like to see them applied to the wireless space and to the wireline space. I don't have any significant information about what I get over my RCN line. And again as Chris pointed out, the right to attach does not exist in wireless, either for cellular phone service or for broadband.

>>MAUREEN OHLHAUSEN
Anyone down at the end of this table?

>>MALE SPEAKER
I would just offer, that there is an agreement that the four principles may be a good place to start but there sort of a necessary but not sufficient protection of openness on the internet. Most importantly, I would say, one of those principles talks about the ability to run a consumer's application of their choice. That for us is a very important part of the principles and it should be carried forward into whatever rules are applied to internet access providers. I would also like to emphasize, we're talking about a policy statement. We're not necessarily talking about a binding rule of decision. So more work could be done to make those principles binding on the network owners.

>>MALE SPEAKER
I would just add, why not be a little more ambitious? Why are we defining principles that apply to network operators? We're looking at an industry in which internet content providers, portal providers, are increasingly providing services that network operators have been providing on a subscription basis. Voice telephony, for example. If consumer disclosure is good for the traditional network operators, why not for the other companies as well. For example, when I download Skype, it's very hard to figure out what is the impact that the Skype software is on the processing capability of my laptop. There are some very minimal language about how Skype will use the computing horsepower of your computer. Is that a big deal or not? It's very hard for a typical Skype user, I suspect, to really evaluate that.

>>MALE SPEAKER
I would encourage to you to go to the Skype share blog to find out how Skype operates on your computer. All sorts of disclosures are made there. It's a very open environment. I think people understand completely how the software runs on a given computer. With regard to your other point, the reason why we're here is because there is a concern that there is market power in the market for broadband internet access. We can try to change the subject to the privacy policies of Google or other internet applications, but for us, you have to return to that fundamental point because that's the grounding in economic theory for why we are here, seeking some level of net neutrality safe guard.

>>GIGI SOHN
We really ought to bury that name right here right now on Tuesday. That this debate is not about what Google does or Skype does, it's about competition, and last mile broadband so let's just bury that one right here, right now..

>>MALE SPEAKER
Well, I fundamental disagree. It's not about competition -- (overlapping speakers)

>>GIGI SOHN
I know you do Greg. But that's not what the issue is.

>>MALE SPEAKER
The FCC has had proceedings about this and if your position is the FCC is misinformed, then take it to the FCC.

>>MAUREEN OHLHAUSEN
One of the questions I want to pose here, do you think network neutrality is consistent with the goals of the '96 Telecommunications Act to the extent it set out to eliminate regulatory barriers and allow greater integration of services. Is part of the question here, Congress and the FCC, did they get it right or did they get it wrong? What should be done about that?

>>MALE SPEAKER
Yeah, there are multiple aspects of the '96 act. One was focused on introducing competition, not just in long distance but also in local networks. And another part of the 96 act on advanced services, you know, had a tri-annual report looking at advanced services in broadband. I think -- and another part of the '96 act focused on whether there is competition to get out of the business of regulating the way common carriers are regulated because I think Congress recognized that that was actually a barrier to investment, new technologies, again, regulation is not costless, right? So there is the balancing that, in fact, you know, when there was competition introduced, then relief was provided to Bell companies and long distance. Or even on the unbundling the necessary impair test that, Chris, you were part of at the commission. So I think part of the '96 act actually required creating conditions and procedures and regulation for entry for competition but then when there was competition, there was a process to pull back and step back from the regulation. I think that that actually is something going to Gigi's fifth principle, which people don't appreciate. That is, that is it's so way over regulatory, that it would result in tariffing and regulating things that we've never regulated. That would result in regulating internet pricing. It could very easily result in regulation of pairing and transit relationships. In fact, even the provisions that Gigi referred to in the AT&T Bell South condition, saying these are all easy. This is nothing. Yeah. So what it's prohibitive is privileging, degrading or prioritizing, any packet transmitted based upon source destination or ownership. I can understand if you don't want things degraded, but that essentially would prohibit pro-competitive, pro-consumer increasing quality of service and prioritization based upon a contract that somebody has negotiated in the marketplace. That's way overstepping, you know, actually, I've been thinking of some of the previous positions that advocates for regulation have been making, that was actually agreed to in that merger agreement because they essentially had no choice if they wanted their deal done. But it's actually very anti consumer. It would end up socializing the cost of internet access and preventing higher quality services that you know, for example, people said they would like to pay for, because earlier, Chris and Gigi both agreed that tiering is not an issue. There ought to be the ability to have higher prices for better quality. That would effectively be prohibited unless you wanted to tariff that and turn that into a traditional common carrier service, all along what the FCC was doing for years that resulted in this cartel pricing in long distance.

>>GIGI SOHN
I guess, I want to make a point about your original question, and then talk a little bit about what Pepper talked about. There are two side of the 1996 coin. Some would argue that there is almost nothing left of the 1996 Telecommunication Act any so why should we care about it. Just assuming that there is, it wasn't just about eliminating barriers, regulatory barriers, as Pepper said. It was also about promoting competition. So I think you need to look at it, from both sides of the coin. To the extent that the '96 act had as one of its purposes, promoting competition, it was a complete and total abject failure. That's why we need Congress and or the FCC and or this agency to step in. To address, Pepper, I just have to ask you, I don't know where you get from a nondiscrimination principle inevitably leading to price regulation. As I said before the program access rules are a perfect example of a self-effectuating regulation, where cable operators have to make their programming available on reasonably nondiscriminatory terms, to unaffiliated multi video providers like Verizon Fios (ph), like satellite. That hasn't led to price discrimination. It's a simple regulation. It's like 5 pages within the CFR. Why can't we have the same or a similar regime here?

>>MALE SPEAKER
First, the program access rules talk about reasonably nondiscriminatory. It's not nondiscrimination. It's more similar to the not unreasonably discriminatory in -- in 202 that actually allows for different deals among different providers. The other point is that it was not under Title 2 so it did not end up in tariffing. Point number three, it clearly recognizes that there are different relationships based upon size, geography, programming and so on. But I also can tell you, having been on the inside on some of these they do look at prices. And the fact is, there are people here from the commission, some of whom used to work in the cable bureau. The staff actually does have to look at price. That -- it does limit the ability to have different kinds of deals, but the reason that that was done, again, it's only focused on vertically integrated content, and there are still, you know, a range of relationships, which is very different than talking about, you know, quality of service, we're talking about basing different arrangements that are negotiated, based upon where your cashing servers are, your server farms are. How many hubs across the internet you go. It's fundamentally different. It did not take place under Title 2, yet a lot of the advocates for regulation want to put all this on discrimination into Title 2, which is traditional tariffing, which is traditional price regulation.

>>GIGI SOHN
I don't know of anybody talking about going back to Title 2? There is a very very limited number of folks but that's not what this debate is about.

>>MAUREEN OHLHAUSEN
I would like to give this side of the podium a chance, either on the question about the '96 act or anything that's come up.

>>MALE SPEAKER
I think the overriding lesson of the 1996 telecom act is that it was an incredibly -- and I'm speaking of the local competition provisions. It turned out in practice to be an incredibly complex framework to implement. It produced endless litigation, it went to the Supreme Court 2 1/2 times. In the end it neither produced this independent business model of the Selac (ph) that seemed to be sustainable. It went away in practical terms because ultimately there were mergers of the two biggest Selacs (ph), AT&T and MCI and Bell companies. So we spent 10 years and we really didn't have much to show for it. Now, would it be easy or harder to write a piece of legislation defining network neutrality and addressing the prices, terms and conditions that would apply to nondiscriminatory access. I think it would be a lot harder. In the '96 Act we were talking about some pretty old- fashioned technology, twisted copper pairs going to central office switches. I think that the complexity of the internet would make the task far, far more difficult.

>>MALE SPEAKER
I have lots of things to say about this having lived through the 251 proceedings of the agency but I'll be brief and make two quick points. Net neutrality really isn't about the traditional notion of nondiscrimination that's found in Title 2 of the Communications Act. I think actually Chairman Martin at his oversight hearing in the Senate put the question correctly, it is different what the internet companies are asking for is different than 251 or Title 2 style nondiscrimination requirements. It doesn't lead you inevitably to tariffing and all the bad things that Bob was describing. The basic point is this, if you want an internet of commercial agreements, you want a cable television system, and we have one of those, we like the internet. We kind of like the way it's created innovation and the ability of users and software providers to reach users. Nothing about our approach would disturb the cable television model. What we're asking for is to build a wall between it and an open internet.

>>MALE SPEAKER
(Clapping) Sorry. Yes, a wall. (Clapping)

>>MAUREEN OHLHAUSEN
Thank you. Okay. Thank you.

>>MALE SPEAKER
I'm sorry. I'm sorry.

>>MAUREEN OHLHAUSEN
Yes. We have a form for written comments if you want to express your enthusiasm. (overlapping speakers) (off mic) Actually, Gigi. Chris' remark actually feeds into a question from the audience that says your remarks that we start with net neutrality is set forth in the AT&T and Bell South merger, why isn't the appropriate definition of nondiscrimination not found in Title 2 of the Communications Act, sections 201 and 202.

>>GIGI SOHN
As I said before. It's not necessary to go there. We're talking about something that's fundamentally different. We're not asking for that kind of heavy-duty regulation. We like the AT&T Bell South definition because it doesn't go there. It doesn't go that far. And it's sufficiently, one of the things Pepper talked about how broad it is, but I think it's actually quite narrow. It says you can't -- AT&T cannot privilege, degrade, or prioritize any package transmitted based on its source, ownership or destination. That still allows you to engage in legitimate network management. You just can't say, while these Vonage's packets so therefore, it will get, you know, it will not get the better priority. We don't need to go back to Title 2.

>>MALE SPEAKER
But Gigi, how do you deal with -- so Google negotiated an arrangement with Verizon wireless or YouTube, now Google, for YouTube delivery of YouTube content over Verizon wireless. That was a market-negotiated deal. Should Yahoo be able to knock on Verizon's door and say, I want the identical deal without having to negotiate for it?

>>GIGI SOHN
Absolutely.

>>MALE SPEAKER
Well, go explain that to Google because that's not the answer they give. What's interesting here. (overlapping speakers)

>>MALE SPEAKER
The point is, look, you know, the point is -- the point is, when you talk about privileged, degraded -- what you basically want to do is turn the internet into a common carrier service where you can't even do what common carriers are permitted to do with large customers. At the FCC, we actually, because of the restrictions in 2002 ended up permitting contract carriage where you could have carriers negotiate with large users and cut individualized deals. That's what drove prices down. That's what allowed some of the big networks, user networks, private networks to grow out. That's also when you eliminated the umbrella pricing for long distance, which is where you finally got real price reductions for consumer long distance service. We've been there, done that. If you want to socialize the pricing -- you can't talk about, you know, prohibiting or prioritizing, right, and not include price as part of that, you know, privileging or prioritizing. You're now into price regulation, because ultimately, the regulator will have to look at price based upon whatever that negotiated deal is.

>>GIGI SOHN
Looking at price is not the same thing as price regulation. Just because a regulator looks at price doesn't mean --

>>MALE SPEAKER
And acts on it, excuse me.

>>MALE SPEAKER
I spent a large part of the last 20 years working on various aspects of price regulation in telecommunications and I find that statement to be completely untenable. Me or Gigi?

>>MALE SPEAKER
I think he means everything she says. (laughter)

>>MALE SPEAKER
You do not implicate price regulation under this regime that she's describing. It's just implausible.

>>FEMALE SPEAKER
Okay.

>>MALE SPEAKER
Even in your cable access it's about price.

>>FEMALE SPEAKER
It's about price, okay.

>>AUDIENCE
(off mic) Ask in the audience how many people --

>>MAUREEN OHLHAUSEN
You know what sir. Sir, excuse me, you're not a panelist and you're not a moderator so please respect the rules of the forum. Thank you. That's how we...

>>AUDIENCE
(off mic)

>>MAUREEN OHLHAUSEN
Fine. File a written objection. Okay. Here's a question from the audience. Are similar debates on network neutrality taking place in countries outside the United States, and have these debates resulted in regulation, and do you think that has been a positive result? So stepping back a little bit, broadening it a bit, what's going on in the rest of the world?

>>MALE SPEAKER
Not nearly as much as here in the United States. The U.S. is definitely in the lead. But the OECD countries are interested. It's an issue of -- we're seeing some attention in Canada, the Netherlands. Those are the main places so far.

>>MALE SPEAKER
Maureen, actually, in the European context, the issue has been raised but the consensus, I think, by the European commission, and among most of the national regulators, is that since they work under a competition framework, that looks at significant market power, that they believe that this is actually not an issue at this point for them. And, in fact, I think there are some things that we can learn from that in terms of use, looking at this as a competition issue, using, you know, they talk about SMP, significant market power. Here we tend to focus on, you now, the FTC and DOJ in terms of competition policy. I think -- that's one reason why I actually like -- I suggested FTC's leadership here because I think there is a role for competition authorities to look at this and evaluate it and to consider whether there are problems and abuses.

>>MALE SPEAKER
I think it is fair to say that the debate in Europe and Asia is different than the net neutrality debate in the United States. But to simplify it that's because those jurisdictions are actually operating in a world that looks more like the prebrand X world than we do. So you can see things like off com's UK equivalency proceeding as an example of an administration that's looking at nondiscrimination as a way of protecting competition at the access layer which would lead to application layer competition in addition.

>>MAUREEN OHLHAUSEN
All right. I'll tend to a few more audience questions. They jump around a little bit as you can imagine. This one is for Mr. Libertelli. And it says does Skype allow it's users to talk interconnect directly with other software based VOIP services such as Google talk.

>>MALE SPEAKER
Right. So Skype is undergoing an effort to build an inoperability to allow those two systems to talk to each other.

>>MAUREEN OHLHAUSEN
And the follow on is, Is -- they're assuming that Skype doesn't allow such interconnection and would that be a network neutrality violation?

>>MALE SPEAKER
This is more subject changing, but the simple answer is, if you wanted to call a Skype user, for example, you could call that user through the distribution of a traditional telephone number which we will provide to someone who is running the application. So if you want to talk to a Skype user, Skype has a service that would allow a nonSkype user to talk to a Skype user.

>>MAUREEN OHLHAUSEN
We have about ten -- nine minutes left. We're thinking that rather than go to some more questions, that it might make sense to give y'all like a minute or two, if you wanted to, any points that you didn't get to make or anything you wanted to reemphasize or any last shots you want to get in, to give you an opportunity to do that and we will -- how about we do it in reverse order of our presentation. Is that fair? So, we'll let Greg lead off.

>>GREG SIDAK
The only thing I would add is that I have a lengthy article on this, it's in the Journal of Computational on Economics, it's about 120 pages. It's got a lot of detail that would back up some of the things I'm saying.

>>MAUREEN OHLHAUSEN
Then it would be Gigi.

>>GIGI SOHN
I just want to make the point that this is fundamentally about what we want the internet to look like for our kids. The internet is not a car. It's not groceries. It's a fundamental means of communication, and the most democratic we've ever had. I have spent many years struggling over trying to get broadcasters and cablecasters and other regulator communications industries to do the right thing. It was abject failure. The internet actually takes away the gatekeepers so people can engage in democratic discourse, E-commercers, innovation and it's been great. And at a certain point we have to ask ourselves do we want to it remain that way.

>>MAUREEN OHLHAUSEN
Actually that -- not to unfairly change the rules of the game.

>>GIGI SOHN
As long as you don't talk about Google, I don't care.

>>MAUREEN OHLHAUSEN
So you're saying there are a lot of public benefits to the network being open. There's a lot of externalities that kind of raises the question, it's privately funded, however, the private companies provide the services, and are we asking them to be sort of an unfair position where we want to keep a structure a certain way because of the public benefits but we want private, you know, companies to provide that?

>>GIGI SOHN
First of all, internet was not started by private companies. It was started by the government, the Department of Defense. That's where its roots are. Yes, I will admit private companies have helped to make the internet what it is today but those companies still rely on public infrastructure. Cable operators can't operate in a locality unless a municipality tells it that it can. Ok. Same thing with the telephone company. They can't do their business unless the local PUC or PSC tells them they can use their telephone lines. So the notion that it's purely private companies that built the internet without any public subsidy at all, it's just false.

>>GREG SIDAK
So the internet is different from cars but it's inherently related to things like telephone poles?

>>GIGI SOHN
Greg, you know -- I'm not even going to answer that. It's a silly statement. It's just silly.

>>MAUREEN OHLHAUSEN
So Bob.

>>ROBERT PEPPER
So I think Gigi is right. This is about what we want the internet to look like. I also think there is broad agreement that one of the terrific characteristics of the internet as its grown up is the end-to-end characteristics. You know, I actually can go anywhere I want unless, of course, I subscribe to a service that identifies itself as a walled garden. But what's interesting and this actually does go to, I think, part of Gigi, one of the questions of, what do we want to require, or Maureen, your question is we've had attempts at service providers putting together walled gardens. They uniformly failed. AOL was a walled garden. People didn't want it. People like the fact they can go within that environment and find content that they like and they want and they feel comfortable with but they wanted a gate in the garden to go out to the wild and woolly internet. At home, the cable industry's initial attempt to do cable modem service was built as a completely closed walled garden and they realized people wouldn't buy it as that and the market insisted, consumers insisted through the market mechanisms that it be opened up. I fundamentally believe that this is about what we want it to look like but I think the consumer empowerment here, because we do have choices that are increasing. It's not yet -- I don't think anybody would argue it's perfectly competitive. But the fact is, we're seeing prices decline, bandwidths go up and the walled gardens fall. I think it's important that that tradition continue but also remember, this is essentially been an unregulated world and market within which this has developed. I don't think that there is sufficient evidence today to say that we should start regulating things that were never regulated. I don't think that we should be imposing regulation here other than making sure that these core principles that are embodied in the high-tech broadband coalition principles, that they actually become enforceable. We don't a whole rash of new regulation that's detailed and the fact is, the AT&T-Bell South conditions would lead inextricably to detailed regulation. I find it ironic, Gigi said program access is easy, it's only five pages in the CFR. Five pages of detailed regulation. That's just for gaining access to cable programming that's being sold, you know, to cable companies. So it's regulation is not -- I don't think we're at the point where the benefit cost analysis says we need a new detailed law and a lot more regulation.

>>MAUREEN OHLHAUSEN
Ok. Chris.

>>CHRISTOPHER LIBERTELLI
We look at this net neutrality issue simply and practically. I don't know anything about the inter temporal marginal broadband customer and if I started talking about it people would keel over, go have a sandwich or something. We talk about net neutrality as a way of preserving openness. That openness allowed a company like mine to build a software application that dramatically reduced the cost of people's conversation. We think that's good for consumers. If you're worried about the next Skype, the next Google, you would as policymakers adopt a principle and policy of net neutrality that protects innovation because there are enormous sources of competition out there on the internet from software to fine services.

>>MAUREEN OHLHAUSEN
Well, I really wanted to thank all of our panelists for bringing their knowledge and their passion about these issues. I just wanted to remind everyone, we will reconvene here at 1:30. In your packets is a list of local restaurants and you will need too go through security again as you come back into the building. Thank you so much. (overlapping speakers) Thank you, everybody.

• See FTC Workshop Transcript for index