FTC NN10

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What Framework Best Promotes Competition and Consumer Welfare/Academic and Policy Panel

This session debates what framework best promotes competition and consumer welfare in the area of broadband Internet access. The first panel explores industry views on this subject, while the second panel explores academic and policy analyst views. Among the topics discussed are the following: Is existing agency oversight by the FTC, FCC, and others sufficient to address the concerns raised by net neutrality proponents? In other words, is enforcement of existing antitrust, consumer protection, and communications laws sufficient? If broadband connectivity regulation is the best option, what form should it take? Something akin to the FTC's broadband policy statement and related conditions imposed on recent telephone mergers? To whom would it apply: ISPs, Internet backbone operators, both? How and by whom would it be enforced? If not broadband connectivity regulation, what will best promote competition and consumer welfare?

Well, this is our last panel. It is similarly title to the previous one, what framework best promotes competition and consumer welfare. This one we'll concentrate more on academic policy views. When I started off yesterday and moderated a panel that was an overview of what is Net Neutrality, what are we talking about here, and as I kind of come to the final panel today, someone quoted cross by, stills and gnash in an earlier panel. This one I'll just say my quote is "What a long strange trip it's been." I don't know if we're that much further along but I think we've had some really excellent debate. Really Good engagement on the issues and I'm hoping that in this panel we can do a little more assisting, a little more identification of, you know, whether -- I doubt everyone on this will come to the same conclusion, but maybe we can have a little more sketching out of, well, given the challenges, given the state of affairs, what framework might best promote competition and protect consumers. And so I'm going to introduce the panelists briefly in the order in which they'll speak. As we've mentioned, their biographies are in your material so there is certainly more information, but just in the interest of time we'll kind of do the short form here. First we'll have a Timothy Wu, clerked for Steven Briar and judge Richard Posner. And writes for slate magazine followed by Christopher Yoo, professor of law and director of entertainment law at Vanderbilt. Prior to joining the faculty in 1995, clerked for judge Kennedy and ray Randolph from the US Court of Appeals from the DC circuit. Next is David zone, staff counsel at the center for democracy and technology, a group educated toward work forgot Democratic values in a digital aid. And we'll have George S Ford who is the co-founder and chief economist for the Phoenix center for advanced legal and economic public policy studies and the Phoenix center for those of you who are not familiar with it is a nonprofit organization that studies public policy issues with an emphasis on the horizon of economics of regulated industries. We'll follow the same procedure as we have in the other panels. If you have questions, please write them down. The ushers will bring them up. We'll start off with Tim.

>>TIMOTHY WU
Thanks very much and thanks to everyone staying through these sessions. I want to use my time up here to actually talk about facts a little more than policy. We've been having a several day debate and actually a several year debate over what might happen or what consequences, neutrality, lack of neutrality will have, whether it's from neutrality in the design of the network or through laws that kind of foster neutrality like Carter phone rules or some of the computer inquiry rules. I want to talk about an industry, a slightly different industry than the one we've been spending most of our time on which is the wired broadband. I want to talk about the pure wireless industry, namely the cell phone industry and mobile industry and some of what's going on there. Obviously this industry is quite a bit different, the wireless industry than the broadband industry, and I'll note two differences which I guess are relevant up front. First of all it doesn't have the architectural and, you know, on sort of the code side it doesn't have the architectural and theory tradition of end- to-end networking, or of the original TC/PIP protocols invention. This is barely used on mobile wireless networks now and limited degree on 3G. If it doesn't start from those kind of foundations and DARPAA and all that other stuff it's a different tradition. Second of all from a policy basis, maybe I'll say three difference, policy basis it has a different regulatory tradition, largely unregulated, some spectrum policy, of course, controls who can be an entrant to a certain degree, you need to have spectrum. It doesn't have the oversight and there is no Carter phone rules, no right to attach devices you'd like to have and so on and so forth. Third, as a third thing I'll add, this is an area and I don't know if this is endogenous or cause, this is an area where the United States is largely not viewed as a technological leader, mobile, unlike our other areas, personal computers and broadband where we're -- or Internet Web applications, usually seen as the leader. You know, we're not the worst country but there is certainly more of a sense in the world that Japan and Europe are co-equal if not ahead of the United States in a lot of these technologies, so it's different in that respect, too. The question is what is causing some of these differences? Well, when we look at these -- these markets, what we see when you look at it is a good side and a bad side. A lot of people have looked at the FTC, FCC, sorry, spend a lot of time looking at horizontal competition inside the market. You have four major players right now who have competed to create relatively competitive prices. And you have a decent level of penetration of the technology to, you know, levels almost comparable with Europe and Asia. That's sort of the good side of things. I think some of the FCC action in this area, portability, other rules have done a lot to try and increase that horizon competition between the parties. The area where I think you see a lot more troubling results are things that I think should be causes for concern is the effect of this, or the cast of this market with respect to the vertical industries above and beyond the wireless spectrum. In other words, the effects that the unregulated industry has had on both software development for mobile platform and for device development in these areas. I want to highlight three areas in which we see facts that I think give rise to some concern. First of all I'll talk about the practice of product crippling and the problems with carriers imposing controls on what kind of devices that companies can sell to consumers. Second of all, I want to talk about the problem of discriminatory 3G broadband services and misleading and -- misleading advertising and also just straight out old style discrimination in offering of broadband services. Third I want to talk about the, I don't know if it's the problem, but this lack of energy in the software, mobile software industry which has been talked about for a decade as the next industry and something should happen. If you had talked to developers in the field has largely been seen as stalled, one of the developers describe as a tar pit of pane, misery and destruction. A market that has failed to develop as people have thought it would and has really failed to take off and to look at some of the details. So let me start with product crippling. The research to do -- to do this research what I did is talked to developers of various products, all of whom are anonymous for fear of retaliation. And they complained about the way the wireless world works is very different than the Internet or the wire line world in the sense that in the wire line world you have the basic telecom person, the Carter phone right to attach whatever device you'd like. So there is a zero price interconnection rule in more telecom terms. You can just put whatever device. As you know, that led, AT&T strongly resisted that rule. They like to have control and have their permission to put something there, to attach the network. In 1968 and then through various computer equations, I don't want to go through the whole process. Eventually this was deregulate and the result was of course the FAX machine-T answering machine, the answering machine, the modem, the personal Internet, blah blah blah, on and on and on. Now we have a very different situation in the mobile world. That is to say this is not a world where we can go to a Best Buy, buy something and hook it up to the network. You almost entirely you know, over 90% of this stuff goes through carrier approval and is sold by the carriers. So the carriers have like AT&T in the 1950s almost complete control over network attachments. Now, what are the results of that? Well, the results of that is that the carriers have used that control to condition what kind of features phones can have. Let me list some of the examples. One of the interesting examples is that the carriers have put a lot of control over phone timers. In other words, timers that might develop an independent record of how much time you are using on your telephone. The carriers have felt that, you know, obviously people might contest their bills and they find this to be something they don't want, therefore phone timers, even though the manufacturers of the devices think this would be a nice service so you can keep track of your own billing, have been severely limited on telephones. WiFi, WiFi has been blocked out of American telephones, not every American telephone but almost all American telephones in the US market based on carrier demands. There is starting to be a little bit of, you know, Apple has a WiFi telephone right now. There is a little bit of push back on this but in general WiFi technology that has been around for obviously about five years ago, people ask why is WiFi not allowed phones? It's not an accident. It's because of carrier control. Blue tooth has been on most carriers, T-Mobile is an exception, largely crippled to its capabilities. Blue tooth was once thought of as revolutionary technology, it's still not a bad technology, that, for example, might make it easier to print out your address book on your phone book or just transfer files from your phone to your computer, back and forth, on a lot of carriers, Verizon, I don't want to pick on them, particularly blue tooth has been crippled an functionality has been lost T markets that might have developed on blue tooth have not developed at all. Let me add beyond blue tooth, GPS services -- well, I won't get into that. Phone transfer capabilities related to blue tooth, one of the things developers said is we put cameras in phones-T first thing we wanted was some way to get photos off the phone. So you know we were going to set up easy kind of e-mailing or capabilities. Carriers were very resistant to this, mostly because they wanted people to sign up for revenue added photo sharing plans of various kinds. So I think a lot of developers claim that unnecessarily camera phones are a lot less useful than they could be. In other words, they could easily exchange photos with other people, send them on the Internet very easily. Instead it's limited to a very limited distribution channel. Just more examples in the paper so I don't want to run past my time. I want to talk next about the broadband discrimination and what happens when you have no oversight. Some of the people on these panels have talked about, you know, I think very admirably the cable and bell companies have said we will not block or degrade any content. Well, that is true on the -- and to their credit they've held up to that pledge so far in broadband and I think that's been a great thing. That's not the case in wireless. In wireless, explicit contractual provisions ban you from using your wireless connection for anything other than Web surfing or email or certain types of business applications. They ban explicitly in text the downloading of media content being, the downloading of music, the downloading of video, the use of EPN, the use of voice over IP, a huge list of things that you are according to the contract not allowed to use your phone for. So there is blocking going on or at least contractual blocking going on in the broadband world. It's in the 3G world. And those are principles which, they are reminiscent slightly of the cable industry's practices in the early 2000s, the one that Michael Powell first spoke out against as being problematic, and that the cable companies to their credit backed off from, you know, to their credit. The cable company said we're not going to -- we want to give our customer the full experience. That was just kind of a mistake. However, we had this exact same situation in wireless broadband which is blocking of various content and various uses of your cell phone. I also want to limit that, this is a consumer protection issue so I think it's worth bringing up at the FTC. There is a lot of advertising which Verizon has an ad which they are still running, I don't want to pick on them but they have an ad that says unlimited Internet access. However, it turns out it is limited. First of all it's blocked for -- you are not allowed to use it for various applications, if you violate it you get charged termination fees. These contractual figures have been enforced by people who are accused of downloading forbidden content are kicked off the broadband service. The last thing I want to talk about is the problem of application stalling. This is something I want to put these facts out here. People really thought that mobile applications would be a great -- would be this incredible market. Now, here there are a lot of reasons that developing for mobile platforms are difficult. They are small, they don't have a lot of computer power. You know, they are not like PCs with the advanced degree of power that we have in PCs but they are as good as PCs 10 years ago. The problem is really the development environment. Carriers are very strongly controlling of who can develop for them and what kind of development, what kind of applications they will a prove to work, including, and have in the process I believe crippled what might have been otherwise very healthy and important markets, including markets based on SMS messaging which are very popular around the world and basically not developing here, and second of all I'll say this last, GPS. People thought that G.P.S. and access to G.P.S. would make possible all kinds of great applications like keeping track of where your dog is or something. Those have not developed, and mostly it's because so far for whatever reason, and I'm not, you know, there is more than one reason here, but the carriers are not giving people access to the power of the GPA's capabilities in the phone. There is nothing to program to, the API's are not available as you think they might be. So we have a bottleneck style of mission driven development environment and the results are clear. The level of innovation you see in the Web world, and I better stop, and in the PC world are dramatic, powerful, impressive. We look to the cell phone world which is an unsupervised, unregulated world we see what should be a jungle is a wasteland. Let me leave it there.

>>FEMALE SPEAKER
Let me follow-up with a quick question. So is it your view, then, you know, one of the questions that has been batted around yesterday and today is whether at some level of competition, at some specific number of competitors Net Neutrality is not going to be necessary because competition will take care of these issues. But is it the implication from your study, from your work here that all providers have some incentive not to provide certain services in a way that competition cap can overcome but which will harm consumers?

>>MALE SPEAKER
Right. My study does offer some caution for the idea that competition, for player competition is a cure all for everything. I think there are a lot of examples of parallel behavior here. We're talking about four companies, not 50 companies. There is a lot of examples of parallel behavior in the study. I think the breaks from it do come from the weakest -- the one where you see variation it really comes from the weakest provider, T- Mobile which shows the importance of at least having those four competitors. Yes, I would say that this study does go in the direction of suggesting that you know, if you have a spectrum based market, that not everything you might think is ideal will necessarily happen from having four competitors. So that's I think where it takes you. I also want to add to it. I mean even when you have competition, there is something that was mentioned on the panel that I think should be mentioned. A lot of what we have here is the use of the issue of a termination monopoly. If you look at the termination monopoly issue, this has been barely discussed, when you look at the use of the termination monopoly they have to go through, if they want to get to you they have to go through your carrier, that's a situational monopoly, not a general market monopoly, a different type of monopoly. That is going to be a problem eve if you have a fair number of competitors.

>>FEMALE SPEAKER
Thank you. Christopher.

>>CHRISTOPER WOLF
Thank you very much. I wanted to ad my thanks to the people who organized this. It's a wonderful forum. So much of this debate has happened in the Internet community, which has no indication of competition principles. Some has happened in the commercial community which hasn't been focused on antitrust issues. Lastly, some of the debates in the FCC has not been aware of the basic insights this agency has developed over the last 50 years and I think this kind of forum can bring all that the. What do I mean by that? Network neutrality is traditionally about two things basically. Competition traditionally defined in terms of price and output and it's impact on-in vacation. I'd like to discuss those separately and build in the insights from the communication literature on industrial organization, the Supreme Court precedents, the decisions and in fact this commission's own studies about how these competition policies should be implemented. So what did we hear from the various panels from both the technologists, from the economists and all this? And even from Tim? The consistent thread is that this is, there is good and bad in here. There are anti-competitive stories you can tell from what we think of as vertical integration, that is someone who has control in one stage of production, in this case distribution can use that power upstream to affect content markets for complimentary services, in this case content and applications. They've also heard that this tremendous good in this, that in fact, allowing these sorts of partnerships and allowing customization and prioritization can make new things possible. So the question is what have we leveraged from this agency's work that would inform us. The answer is we have a 50-year history of studying vertical strengths and vertical integration. We had a world as late as the 70s quite hostile to vertical integration that has changed into a world that is much more sum sympathetic, influenced,, marginalization problems that professor Salinger studied. In the telecom states there are certain features that can only be provided best on a investor integrated basis. Caller ID being one of the primary ones because it's the computer that is the switch that is the most efficient and cheapest way to do that. And as one of, I think it was John Thorne said earlier, the failure to approve that delayed it for a number of years. We have a world in which some things should be best provided on a vertically integrated basis. Network elements instead of Luke curves, computer 3 inquiry, all this is try out of the FCC regulation has shown that as well. What do we do when it's sometimes good, sometimes bad? Antitrust loss is when it's always bad, you declare it to be illegal per se. That is essentially you regulate it out of existence. A regulatory bar would be a very effective legality rule. What happens when it's sometimes good or bad.

>>SPEAKER
The default rule in antitrust law is called the rule of reason, a case-by-case analysis where you allow the procedure, allow the practice to go forward, until someone can demonstrate harm. Now, what's really interesting about this is there is some inspiration behind this which was technological change and economic progress needs room to breathe. We can put the thumb on the scale that you can't do it unless you can show it's good or you can do it unless you can show it's bad. You can think theoretically you have to give people that sort of space. In practice, this Federal Trade Commission has done some wonderful studies here. If you look at the enforcement activity, generally the study of the actual enforcement activity in the telecom sector, these are not the kinds of markets under the rule of reason in terms of the level of concentration that traditionally raise antitrust concerns. The FCC studies says these various markets are not the traditional kind to raise antitrust concerns. There was a wonderful study conducted by the commission that looked at vertical integration, 17 studies, whether it's wealth enhancing or not, of the 17, 16 found vertical integration to be welfare enhancing. If that's the case not just as a theoretical matter, just as a matter of the his tore call record, some of them are in the cable industry, some related industries, it strongly suggests that given the empirical record, we just show justification of putting the thumb on the scale of allowing people to experiment with different things. Another lesson from antitrust law, we used to be extremely suspicious, solicitous of protecting potential competition. What did we learn in the antitrust law? Potential competition are very easy to state and very easy to imagine and often don't materialize and you lose a lot of wonderful business models if you do a lot of proactive, preventative regulation or prohibition because of threats to potential competition. And antitrust law on the whole has become less empathetic to that and said you know what? Unless there is something really pernicious going on here let's let people experiment and see what we see, wait for actual harm to be demonstrated. I'll switch to my regulated industry path. One of the insights of antitrust law best projected by the a Shinko case is the difficulty of supervising regulatory decrees. Access mandates of exactly this kind are not structural decrees where the FT. Can come in and make a change and restructure the market and let it go on. It generally requires ongoing supervision by an antitrust court in an essential facilities case. You can go to any horn book. They are all saying that. In fact what it suggests is these sorts of antitrust agencies in courts are not in a good position to do that. What regulating industries has taught us that rate regulation and price regulation works extremely poorly when the thing you are attempting to regulate varies in terms of quality. Because then you can't just regulate price. You've got to actually start putting on motions about what quality regulation is. This has come out in cable television regulation, and all these wonderful thing that I'd be happy to talk about and are in my published work. Then the last bit I would say is that what we've learned is that in fact these are two-sided markets. And that basically the upgrades to the networks have to be paid for either by consumers or by the server, content application side. And that in fact we need to allow -- allowing more flexible on the server side means all those costs as someone said better would be born on the consumer side. Part of those costs should also vary based on which servers, which content application providers need those more advanced servers. If all are you sending is text you don't need some fancy high powered service because you need for multimedia. To force bloggers to pay for the upgrade they don't need will knock a bunch of bloggers off the system. Allowing people, forcing people to pay what they are using and not forcing those who aren't using it makes sense. I'll throw something else, pricing. One of the problems in the world that we live in is this big up-front costs have to, high six cops, low marginal cost businesses cause tremendous problems from an economic efficiency standpoint. Why? You have to market up above marginal costs to allow them to recover a portion of the fixed costs. Every time you do that you lose someone who would be economically beneficial if you allowed them to purchase. What did Ramsey discover in the 1930s? Some people are very price sensitive. If you bump them up even a smidgen they'll stop buying. Some people are very price insensitive so even if you raise their prices severely they'll keep buying. He said hey, let's load up the fixed costs from the people who will keep buying no matter what, the price insensitive people and lower, minimize, and charge a smaller proportion to those who are price sensitive. That's the most efficient way to recover fixed costs. In other words, there is not just supply side price discrimination but demand side price discrimination. The moves to do this can actually be quite efficient and beneficial for networks. That's hard to say about competition policy. What do we have to say about innovation? The Internet is not the same Internet that grew up in the NSF net days. What began as a means for academics to exchange email and trade files has now, with decommercialized, commercialized in the mid 90s, now the number of units has gone up and the numbers of connections and dramatically the number of users. Second, the way they are using it has increased dramatically in terms of the lengths of the bits, the packets, the streams, the tolerance for delay, and then in addition, the number of transmission technologies we're using has grown incredibly heterogeneous, especially wireless which is very unique and very quite different than the wire line technology. So a lot of the changes can be seen as the natural reaction of networks to try to deal with the increasing heterogeneity of the thing that they are trying to manage. Of course they are trying new things because new things are being demanded from them. In fact what we are learning is that you know what? There is every protocol inherently favors some applications over others. TC/PIP first come first serve, very good at some things, worse at others. In a sense there is no neutral way to go here by choosing one protocol over the other, you will actually be choosing winners and losers. What's really interesting from an innovation standpoint is there are innovations that want a different routing protocol, and if we try to shove it into too much one way you actually won't get those services. And if you ask innovators today-T ones that are in life that are about to come to market love the network the way it is today. The threat is the innovation that depends upon a different one, Medtronic wanted to do heart monitoring which they acquired guaranteed quality of service in terms of response time or else they can't do it with their load calculation. The other thing is standard, sometimes I'm accused of saying you're saying standardization is bad. Of course I'm not. It's good. But what I'm saying sake commerce will tell you there is an optimal level of standardization. Uniform standardization is not always the best thing N this case highly standardized results are likely to decay. If we had four players and one wanted to come out with a different architecture, if they are wrong they'll get hammered and come back to the fold. If they are right it's precisely the kind of innovation we should tolerate and encourage. This is looking at the Time Warner AOL merger we don't know what models will win or lose. I have an argument that in fact those of you familiar with monopolistic competition allowing people to diversify what they offer allows them to -- allows specialty stores to survive in a Wal-Mart world. Even if you have a cost and volume disadvantage, target a smaller group of customers who need a particular set of services, particularly highly can allow you to survive even though you are facing a bigger competitor. The flip side is if you don't let them do that you are co modifying bandwidth in ways that will be in force that allow on price networking size which only is enjoyed by the biggest players. This all cycles back which is forcing someone to share the network will actually, the data, there is an OEC data looking at whether unbundling has encouraged broadband deployment or not. It suggests it doesn't. The other things that come out of the investment numbers we've heard and in fact if you look at the post brand X, that's when all the content start pouring money into alternative services. I'll say one last thing. People are saying should we keep things the way they are? There is a word for this. They call it the precautionary principle. We don't know what the world would look like if it were different. We should keep things the way they are. What is interesting is there is an academic debate that says in fact privilege in the status quo is kind of unprincipled because there are risks to keeping things the way they are that can be just as important as the risks of changing things. So you have to have a reason for put a thumb on either side before you say let's just keep things the way they R what's emerged even looking at the empirical data showing vertical integration has been beneficial, the other side says there are only things that should be looked at that are catastrophic and irreversible. If you look at AT&T and the reconfiguring for equal access we have to be going back and forth. They need the kind of threshold that we're talking about.

>>FEMALE SPEAKER
Christopher, I certainly have to agree with you that in general it's very hard to foresee the future and what's going to come. My sister happens to be a computer science PH. . In the early 90s she told me, she said there is this thing, a computer network where people doing research can get access to share research. We have these things called pages where our CV is on it. I thought to myself boy, that doesn't sound very useful. That's why I'm still working for the government. So that brings us to David.

>>DAVID SOHN
First, I do want to thank the FTC and Maureen for hosting this event and for inviting CDT for participate. We very much appreciate the opportunity. What I thought I would do is say a little bit about what I see as the core goal here and offer some thoughts about what an appropriate framework would be for achieving that goal. I think some of the themes that I'm going to hit will sound somewhat familiar to folks who have been here the last two days. Certainly a lot of arguments I think cycle through. But I'll just start by offering the premise, I'll start by offering the premise that neutrality, this whole neutrality debate is not just about preventing bad behavior, and abuses. It's also about preserving something that has proven to be extraordinarily beneficial, and that is this network structure that greatly facilitates independent innovation and also independent speech. So this point has come up on a number of panels but just to reiterate, the Internet allows a small innovator or speaker to offer content, services or applications to any interested Internet user and the key point is without having to get any kind of permission or strike any kind of deal with the ISPs of the different users it wants to serve. That's not to say the Internet is completely egalitarian as Phil-wiser pointed out on an earlier panel, this isn't an egalitarian Utopia where money doesn't play any role. It keeps transaction costs low which was discussed on the panel yesterday and it keeps the barriers to entry low. I think it's important to point out that this kind of open network is not something that the marketplace often initiates in the absence of regulation. Builders of private sector networks when they go to build networks have tended to prefer to retain some higher degree of control. Tim mentioned that Carter phone cases under which the FCC required AT&T to open the phone network to third party telephone devices, he us also talked about what's been going on in the wireless networks that have been built and certainly cable networks when they rolled out weren't open in the way that the Internet was. But it so happens that this thing called the Internet was created in an academic context with government funding and riding on the telephone network, and maybe in part because it was developed in that kind of context, it was open to independent innovators and speakers in the ways that a lot of other commercial networks are not. I'd also add that that openness was reinforced by the fact that in a narrow band world there was a huge number of competitors for the narrow band ISP market. So the result of all this looking around should be pretty apparent. Right? The Internet unleashed a wave of innovation which was driven by small inventors and entrepreneurs with no connection and no deals with the major network operators, just to tick through a couple examples that again I think are pretty well-known. The World Wide Web, Web based email, instant messaging, secure socket slayer, more recently Google started by a couple graduate students, U tube became an overnight sensation. You could make a really long list like that. You could go on and on. The point is that the Internet has fostered innovations that create a huge amount of both economic value and also noneconomic value because the Internet also, as I think Harold Feld touched on, it's facilitated speech, it's facilitated new collaborative ventures like social networking and Wikipedia. There is a lot of both economic and noneconomic value there and it is linked to the network's openness to independent innovation. So I would argue based just on the experience with the network to date that society has a very strong interest in insuring the continued availability of this kind of open network because the beneficial spillover effects to both the economy and society appear to be very large. Now, having said all that, that does not mean that this is the only kind of network that should be allowed to exist or that experimentation with other models should be banned. It just means that experimentation with other approaches should not be allowed to crowd out the structure that has been the source of so much innovation. To use an analogy, I've sometimes heard in these debates people talk about the postal service and premium delivery services. Well, yes, by all means a premium delivery service like Fed Ex should be allowed to exist. You shouldn't regulate that out of existence. At the same time, though, there may be a very important policy objective of maintaining ordinary postal service delivery at an acceptable level of service. That I think is really what the goal ought to be here. It should be to keep this neutral open Internet at an acceptable level of service. To keep that in existence even apps experimentation with other networks and private networks as was discussed in the previous panel, even as that kind of experimentation proceeds. So if that's the goal, what kind of framework is needed to achieve it? Well, first I think relatively straight forward, and at sort of the more blatant end of the spectrum there is the idea that an ISP could simply block access to selected sights or services. I think we've heard repeatedly over the last couple days network carriers have said they have no intention of doing that. You have the FCC principles that seem to target that fairly directly by saying users should be able to access the lawful content and services of their choice. I think competition law could come into play there as well, particularly if the blocking was blocking of sites that were competing in some way with the ISP's own affiliated services. I do think that having said all that, it might be useful to establish with greater legal clarity that blocking won't be permitted and that in fact enforcement tools will be brought to bear against it the but where the rubber really hits the road in this whole debate I think is discrimination is short of outright blocking. So short of outright blocking ISPs could engage in various forms of discrimination and the fear is that could have the practical effect of driving innovators to really have now a practical need to seek deals with each recipient's ISP. It's not that they'd find their traffic is outright blocked. It's not blocked exactly but they'd find that in the absence of striking that kind of deal, their services just aren't being delivered very effectively and they have trouble delivering the service at the level of quality that they'd like. Here, too, I think there is a potential role for competition law and potentially for the FTC. Some types of discrimination, for example, if an ISP were to purposely degrade delivery of certain traffic in order to create competitive advantage for its own services, sure, that clearly could implicate competition law. I think, though, that certainly antitrust remedies can be slow and cumbersome and for some new entrants that's not going to be a very satisfying remedy. But I think there is also another scenario to worry about, which are activities that don't on their face appear anti-competitive necessarily. What if an ISP simply starts striking lots of deals for priority treatment with lots of different content providers? And that becomes sort of the standard way of doing business, and those deals become common place enough that in fact ordinary unprioritized traffic now finds its performance have degraded because it's in the back of the list behind lots of prioritized traffic. It's not clear to me that individually those kind of deals would run afoul of current competition law, but I think their cumulative effect could be to produce exactly the kind of results that I'm suggesting we should try to avoid. Namely making deals with all the recipients' ISP as a de facto necessity for someone trying to enter the market. And I just add, and again this is a point that has come up several times but I think it's really important. If that kind of Web of deals were put in place, it seems to me it would be very difficult to unravel it after the fact once all the investments have been made and all the business plans have been built. If that is an outcome, that policymakers want to avoid, it seems to me that a clear signal needs to be sent in advance and it would give a lot more certainty to the marketplace to do so. So my view for framework is that because of all this there may well be a benefit to some new legislation in this area. I don't claim to have all the answers for precisely what it should look like but it should deal with both the question of blocking and the trickier question of discrimination, it could potentially have a transparency component as well. But just as important I really want to stress this. It would need to be very carefully targeted and you would have to be very careful to avoid create a burdensome and bureaucratic regulatory regime. I think there are a few ways that it might be limited. Number one, it would be -- it would have some limits on its scope. I would argue its scope should be limited to consumer class broadband Internet service. It wouldn't have to apply to or preclude other services offered over a broadband provider's network. If you look at the AT&T merger commitment it takes exactly this kind of approach. Right? It excludes enterprise managed IP services an it excludes IP television services. So there would be some scope limitation. Second, it wouldn't need to take the form of a full common carriage regime. Some people have talked about price regulation. I don't think there is a need for any regulation of the prices that ISPs are charging end user subscribers. They can develop different tiering arrangements for different kinds of volume or throughput. All of that should be fine. It shouldn't need to be interfered with. Third, it wouldn't need to involve a complete ban on all prioritization, even on the Internet part. I think in particular, an ISP should be free to offer prioritization capability that enables subscribers to choose what services to use it with. So if there are some applications out there that would like to run on the Internet but would need some priority I would say absolutely let subscribers have the option of buying a prioritization capability that they then decide what VoIP provider or what other application provider they'd like to use it with. And finally, I also think anything in this area should avoid granting just open-ended regulatory authority to an agency. Clearly there would need to be some enforcement authority by an agency, probably the FCC or FTC. But I do think the basic parameters should be set forth in statute rather than just an open invitation to go forth and do whatever seems right with respect to the Internet. So just to sum up, I do think that the goal of all this is not to create some radically new principle. It really is to preserve something that has been the status quo on the Internet. The history of the Internet is that it's important to preserve this and waiting until it's too late would be a mistake. Thanks.

>>FEMALE SPEAKER
Dave, I wanted to follow up on your vision with tiering. If I think I understand you to say, tiering is okay as long as, you know, consumers are willing to pay more are the tiering, and that, you know, to get certain services delivered more quickly. If most consumers preferred that and ended up paying more, so that you ended up sort of with a low grade tier that many people didn't use, would that create problems for you or simply the fact that it's consumers who are making this decision to greatly prefer the tiered services? Would that take care of your concerns?

>>SPEAKER
Yeah, I think so long as the decision rests with the consumer, I mean you know, the consumer and the ISP can work out between themselves what level of volume or throughput the consumer wants to buy. If the consumer finds a certain amount is inadequate they can upgrade. I think if there are special add on services that provide, you know, a temporary capacity boost or something like that, I think as there is no problem with that as long as the consumer can really choose whatever suits their needs and is free to use that with whatever services and applications the consumer chooses to use.

>>FEMALE SPEAKER
Thank you. Now we have George.

>>GEORGE FORD
I'm going to take a slightly different tact. I'm not going to really propose anything specific for networking legislation. I didn't think that's what this panel was about. Rather I'm going to talk sort of about policy and how things -- how the policy debate might be improved. The first thing I've noticed from this event, I've been here for the past two days, is that the network neutrality debate is clearly transformative in the sense that lawyers and now economists and engineers and economists are now engineers and lawyers, and engineers are now engineers, lawyers and economists, and the engineers always stick close to what they do, but deviate every now and then. They are the smartest of all so I guess you have to give them some room for that. And what happens a lot of times, or most of the time I think in this debate is that people get out of their area of expertise, and some nonsense comes out. For example, a firm offering a low quality low priced product and a high quality high priced product is not price discrimination, and economic price discrimination. It's not terribly informative on that issue. If a firm chose to do that they generally would not choose to offer low quality product at a low price only. Okay? I mean imagine if the broadband providers called everybody up today and said here is what we're going to do. We're going to raise your price $5 and cut your broadband width in half. That would not be a profitable strategy yet some people seem to think and yesterday think it's not it's a profitable strategy. Their arguments are not economically informed generally because the people giving the arguments are not qualified to talk about economic arguments. I'll discuss that later. Economists are just as guilty, the market is not contestable in any sense of the economic use of the word. I'm not even sure that would be good if it was contestable for the people who were making the arguments regarding investment. If those investments can be immediately retrieved upon entry and exit does a rule really hurt you that bad? I don't know. It's the spunkiness in the long lived investments that seem to make the issue more relevant. I'm not sure. Haven't worked through the math yet but that seems sensible to me. I also heard yesterday that the local market for broadband is global. I think that's kind of a strange argument. And the economists being lawyers, those were economists being it is. Economists being lawyers in reference to Trinco, the Trinco decision applies when there is regulation. Okay? So you are not protected by Trinco today, if we pass network neutrality legislation, then you are protected by Trinco. Okay? So keep that in mind when you argue about this issue. Also the notion of sabotage, think that's really what a lot of people are talking about, we call it discrimination, but you know, nobody defines that so I think really what we are talking about is sabotage or some kind of leverage strategy. Okay? Sabotage is generally and certainly in the economics literature a result of regulation. It is not something firms do for fun, and it's not something firms do for profit absent regulation. Okay? The beauty that we have observed in the uni- worlds as we discussed in our papers, was a consequence of regulating the price of unbundled elements below the opportunity cost of the phone company. I didn't say below cost necessary, below opportunity costs. Okay? What they view their costs to be, not what the social cost is. Okay? In competitive markets that's fine if they want to charge that. That's the efficient component pricing rule which is efficient under certain conditions. So when you think about the sabotage, I think we should start using the proper terminology, if I'm going to wipe you out, say the Madison river case, I'm going to preclude you from this market, why did they do that? It's because they are regulated to the hilt. Okay? If they could have said I'm going to offer you for $20 a DSL package where you captain get Vonage and offer you a $25 package, then there would have been no sabotage. Okay? That was the deal that they were willing to take. Now, you say oh, that's horrible. We heard people say that was horrible yesterday. That depends on what that $5 measures. Okay? And really in essence quibbling over price, even if we had God herself run together network as a social plan or social welfare maximizer, we would observe that behavior. If somebody could do it more efficiently I will sell you the right to do it. Okay? So it's not a bad thing per se. It could be bad under certain conditions, usually when there is monopoly markups. There is going to be markups in this business, it's a fixed cost business. Price doesn't equal margin of cost so that term will never go to zero. Also just a general condemnation of duopoly. I started the FCC in 1994. If somebody had sat me down and told me there that what we're going to have is duopoly in telephone, duopoly in high speed Internet, really fast Internet and a duopoly in video, I mean we'd have had a party. I mean that is just the best of all worlds. Really when you think about this market structure and you should read policy paper number 21 by the Phoenix center which doesn't tell you what to think but how to think about the issue, this is going to be a concentrated industry and you need to think in terms of that and realize that that is not necessarily a terrible outcome Kay? Duopoly is not the same as monopoly except for people who used to complain about monopoly and didn't get what they want. Now they'll complain about duopoly and complain about what they can't want. And now we'll have five firms in the business and complain about that. The other thing that's just crazy is markets do not guarantee that you are going to get what you want at the price you want to pay. Okay? I mean claiming that this is not what I want is irrelevant. I think that it ought to be like this. I think my gym, my health club should have a dry cleaning shop and wash my car when I'm there. Okay? They don't do that. Well, there are only three of them within 30 minutes of my house. That must be the problem. No, it doesn't work that way. Okay? I mean you just don't get it. Then the economic incentives is like the car phone discussion. I mean car -- talk about context. Carter phone, that was a decision about a vertically integrated highly regulated monopoly. Okay? Where they were as regulated local phones, if you just said look, we can raise your phone rates by a few dollars and give away the equipment market they've probably said fine. I'm only using that market because it to get more profit and you won't let me get it here in the local service. Then we're going to apply Carter phone to an industry that's not vertically integrated, not regulated, where we have a competitive equipment market upstream which was the end result, and how great are phones? I mean can you put a flip phone into an R 11 jacket? No, you can't. A sky phone.

>>SPEAKER
No. I can't plug my cell phone into an R 11. Every phone I get from Sprint I can use on Sprint's network. Just to say that Verizon with their fiber network and whoever builds a fiber network says you know, this connect -- connection is not very good, we Kim prove service with another connection. Is there going to be a ruckus about that.

>>SPEAKER
I don't know. Should we stop that? I don't think so. It's not like the old days where you had a connected device. Right? Which exposes the problem of regulation. Okay. Sure, we'll allow you the Carter phones, we'll allow you to do it but you have to buy this connective attachment, this little thing that protects the network. I'm going to get all my equipment rents from this little thing, so I'm willing to do that, but that, you know, it just -- you have to understand the economic incentives to talk about economics. And I think what this argument really really needs is some discipline. Okay? First don't talk about things that you don't understand. Okay? That's number 1, okay? If you are -- you know, it's not that lawyers can't do economics. I mean you can use economics. But make the connection, the Nexus direct. Don't just make stuff up. I've seen like these leveraging stories I've seen. . I mean they are just insane. You can't prove leverage, the incentive to leverage or to Abitage without a very sophisticated mathematical model. All the easy ones have already been done. So if you got a new one it's going to be very subtle and it's going to be very complicated. Okay? The general rule, I think everybody in this room should accept, I'm going to miss a few but I think this is a pretty good rule. If you can read it and understand it it's wrong. Okay because even the Ph.D. economists generally have to stare at these things for days and even still might not really understand the subtlety of the argument. Okay. There is a famous paper on sabotage that was published in a highly respected journal. Probably the most cited paper on sabotage that contains a serious and fatal mathematical error. Okay? And the incentive to sabotage the firm in that paper only occurs when output is negative. Someone forget to check the corner solutions okay. So even economists, even with the sophistication of their cools they get it wrong sometimes. So a verbal discussion of undefined terms is not generally going to give you any information. Okay. But let's get specific. If you want to call it discrimination, what does it mean? Okay. And when you describe it, think of an economist who says I got to model this. I got to write a function out for this. What is discrimination? What is a complimentary product? Okay. What does that mean.

>>SPEAKER
Does it affect the demand for this? Does it affect the demand for that? You have to define what you mean by these terms. If you are going to make an argument, okay, prove it, either have a story, either keep your argument so simple that it covers you, okay? Like Chris, you just did on Ramsey pricing, it was a very, you know, nice statement of Ramsey pricing. He department push it too far, and say there is some result here that's kind of unrelated but this is proven by this argument. It was just a simple statement. You can certainly do that. But don't just make stuff up because that's where you are typically wrong. The reason economists actually do all the math is because they are wrong too in their head. You write this stuff down and you go what was thinking? That was a stupid eyed yeah. Generally I really don't care what you want. Okay? I don't think any of us should care what you want, how you want the market to work. The question is is there a market failure? The fact you don't like the result is not a market failure I don't like the fact seats recline in airlines. Okay? But that's tough. You know. And think, tell me any business, any much you sit here and think for the next 10 minutes, one business where you get what you want at the price you want to pay and you cannot think of any. Okay? An ability to find people who complain about things like developers, if you watch the show on Wal-Mart where people go into Wal-Mart and try to get their product to be carried by Wal-Mart and they don't and they cry because they can't make a business if Wal-Mart doesn't carry it. Or American idol. People come in there, they can't sing a lick. But when they walk out that door they think they can. When they walk in and walk out. They think they can. Does the fact that they complain and I can get it off a backlog mean that Simon really is an idiot.

>>SPEAKER
I don't think so. You're lost. That's not what our business does. We're not in that business, and I've been in the telephone business. It's just the idea that you just have an infinite number of telephones on your wireless network is insane. It's insane because every product has to be supported. Your personnel has to know how it works, how to program it, how to service it, how to repair it, all those keep batteries for it, keep pockets for it. You got to do all these things and it's just too complicated. If you ever worked for a telecom company you realize how complicated it is to make the most trivial adjustment to your product. It is ex -- exceedingly complicated even if it's just a billing issue. Okay? It is so complicated. Just change the billing. They go oh, well, that will take us six months to do that and half a million dollars. Just be careful and be specific and don't get out of your bailiwick too far if possible.

>>FEMALE SPEAKER
Thank you. I think I will give Tim a chance first. George I think you made a specific reference to some of Tim's presentation so I'll give him a chance to weigh in first, and then as we can kind of go through the panel, if anybody would like to comment or just weigh in on some of the things that some of the panelists have raised.

>>TIMOTHY MURIS
I think, I want to comment on Chris -- this will be a very general comment on George and Christopher's presentation. One thing I think in general, I think that if we apply traditional antitrust principles and some of the economic models we've seen in this area, I think we may end up with industries that grow at the rate that we've seen with a lot of the traditional areas where we've let antitrust apply. But what I think we won't see and what I think what we're doing here is we're trying to understand why certain markets, the PC market and Web markets have been growing so fast. What is it that's happening here and why exactly, what sit in the technology, what is it in the design that is fostering both this giant level of consumer surplus that we've seen, I mean this phenomenon and this -- and also just the raw economic growth we've seen from these sources. I don't think anyone in this room really understands this question very well. I think economists flatter themselves if they think they can come up with existing models that will cover all these kind of situations. I think that there are areas we don't understandable and I don't pretend to understand them well but I think we know empirically that we've seen something strange in these industries. Some industries are growing very fast. Other ones aren't growing at the rate we would expect, and I think that's what we're trying to do here and understand whether there is something important in the design. You know, a lot of people who are in this room and in DC are, I think, reasonably suspicious of centralized planning, suspicious of command and control strategies. My only understanding is why they are not suspicious of those strategies when they are practiced by the bell company and when they are practiced by cable companies. I mean there are central planners in these networks and bad central planning decisions like I think we've seen in the cell phone world, do have adverse consequences. I mean you can decide if the FCC is doing it or it can be other entities that are doing it but central planning as opposed to planning comes at a cost. That's something you can see well if you understand the technologies in this area. I'd also like to make a specific comment for George, Mr. Ford. I agree that we should stay within our competencies and I would like to ask you whether you feel, how well you understand the design of the Internet protocols, and the various technologies surround together Internet, and you feel you are competent to talk about them.

>>GEORGE FORD
I've never talked about them and I've never written a paper about them. I write about economics and I write about law because I write papers with lawyers, and that's the level that I deal at. I mean I'm not an engineer, and when the engineer comes in and tells me that this is possible to discriminate, I generally believe him. I'll probably check with another one or a couple of them to make sure that that's true. It certainly sounds plausible to me. So I guess not, I'm not in the business. You can look at -- you're more than welcome, the work is free for download. We've written a number of papers on network neutrality. We propose ad problem, used a math mat call theory to prove it or empirical measures to prove it, and it's there, if you want to criticize the work we're more than happy to put it up on our website right next to the paper, and we will respond to it if we need to. So no. I mean I'm not an engineer and I'm not going to sit here and say I know how it works, but I did know.

>>TIMOTHY MURIS
My point is the facts here matter. And if we don't know what the facts are how can you apply a working economic model if you don't -- if, you know, the thing you are modeling in fact isn't the facts that are here is what I'm saying. See, you have to understand the technology. There has to be a certain level of understanding of the technology, and you know, have a background in technology that I bring to this table and you know, I focus my comments, I didn't focus on the economists, just on the facts of what's going on. I think we see a big factual difference between the kind of innovation we are seeing in cell phone applications and Web applications and I think it has a lot to do with the technological design of the network. I think we need to understand why that's going on and that's what I'm bringing to the table.

>>MALE SPEAKER
Well, if the technical design of the network is I'm certainly more than willing to leave that to an industry that has by your own admission produced competitive prices, that means they are certainly not colluding to do anything harmful to consumers. And I'm not ignorant of the network. I mean I've worked in telecommunications firms and bought circuits and nodes, know the models and helped our engineers build switching models. But I'm not an expert in that field and I'm not going to argue with you over Internet design because that's his expertise. I'm more than happy to hear what he has to say, I'm more than happy to hear what lawyers have to say about law and engineers have to say about engineers. Engineers and lawyers can advise autonomous but you should you be careful and do your research when you talk about ideas, talk about telecom history and why it is that certain rules were applied.

>>FEMALE SPEAKER
I'd like to give some of the other panelists a chance to weigh in. David or Christopher?

>>MALE SPEAKER
Sure. I don't think I want to get into the back and forth of the different expertise going on.

>>FEMALE SPEAKER
You don't need to do that.

>>MALE SPEAKER
Bringing it back just to the basic question of whether some kind of action might be necessary here, Christopher pointed to the breakup of A at the present time as being kind of the model of how we could go forward if we don't regulate here and could address the problem afterwards. I mean look. I think there is lots of uncertainty here and I think this back and forth does indicate that. Right? I mean George said that economics involved complicated math ma mat call models and if you can read it and understand it you're probably wrong. That suggests to me we won't get definitive avenues from all the questions we are wrestling with here today from mathematical models. None of us are going to be able to predict exactly what the future holds and how all this is going to play out. That does lead us back to the place of trying to figure out. We see potential threats, we see potential threats on both sides. There is some risk of regulation and risks of not regulating. What should we do at this stage? I guess when I think about the risk that neutral Internet is allowed to be frittered away and then we have to try to pull it back with something on the level of complexity of the breakup of AT&T, I'm very concerned about whether that would actually happen.

>>MALE SPEAKER
What's interesting to me is we used to have a vision of competition which was vertical disintegration, mix and match. The part to part, consulting any of the auto manufacturers and they can deal with any of the retailers. The teaching of the last 50 years of vertical integration theories are ways to organize an industry. What's very interesting to me is think about the example Tim makes, cell phones. I think dart cart he phone is an apposite, we don't have a monopoly. They have choice. The integration between handset and service has to be a lot more tight. One service that some cell phone manufacturers are experimenting with is when you walk across the room you get hot and cold spots based on the wave propagation. So hold onto the stuff that's not time sensitive like your data, and we'll keep sending you the stuff that is time sensitive until voice. Then until you get to a hot spot and they'll dump it all at once. To do that you have to have a tight integration between device and network. The other point is the whole break up of AT&T is increasing competition in long distance despite regardless of who your last model provider was. I don't have a choice in the cell phone world. I'm locked in in a space that's very competitive, no one can make money doing long distance anymore. What I see is I see two different ways of organizing it and if you were concerned about the kind of for closure aspects it doesn't lead you to a general network neutrality rule. If you are worried people are going to favor their vertically integrated content you wouldn't say therefore you have to run everything. You would say well, if you are a cable company you can't, and you offer cable, you can't discriminate against IPTV. There is no story there about why they would discriminate against, a cable company would discriminate against VoIP or DSL provider would discriminate against IP TV, that's a God send to them. What you talk about is expropriation. Expropriation is not determined by the vertical integration, it's determined by the number of options you have. The more options you have the lower prices you pay. Vertical integration, network neutrality will not give me more options in terms of broadband providers. I have two choices, DSL and cable modem. It's about expropriation between content providers and network providers. That is exactly the kind of bargaining -- that's all about bargaining power. That's not a policy issue that traditionally we've left to markets because we shouldn't be picking winners and losers in bargaining power spaces. The last thing is what do you do with uncertainty? I think that you just let people experiment, and you adopt a rule that doesn't forbid anyone from trying a particular practice. Wits called network diversity. In fact you tolerate the fact that different owners might be trying different things at the same time. And I think the competition policy has taught us that what you do in your uncertainty is not to tell anyone they can't do anything, unless it's so bad if they even try it, all life on Earth will end as we know it basically. And the thing is it's not clear -- we can have a discussion about that, but the question is if we allowed one network provider, one wireless provider to expand with prioritization, I guess if we have four network providers it's unlikely to lead to harms and stopping them from doing that might be worse.

>>FEMALE SPEAKER
I wanted to ask a more general question. Stepping aside from no network neutrality or yes, network neutrality, some other paths that may address things we've been grappling with. I wanted to get the panelists' comments on whether changes in spectrum policy could obviate some of the concerns that network neutrality proponents have? And your views on incentives to build more bandwidth. David talked a lot about, for example, sort of the public externalities of the Internet, some of the benefits that extend beyond the economic, and is this some kind of basis on which there should be more subsidy for that, you know, for more bandwidth for people, or however you build it out, whatever way, is that helpful or is that not helpful? Doomed to failure or just simply not enough?

>>MALE SPEAKER
I think more spectrum would be incredibly helpful. What does the vertical integration theory tell us? A vertical chain of production is only efficient if every level of the chain is efficient, is competitive. What does that mean? Vertical integration policy should seek to find the level of production that is the most concentrated and the most protected by entry barriers and attempt to deacon at any rate that. For us it's not backbone, it's not the ISP on the business side, not content and applications which is already the most competitive and least protected by entry barriers, it's the last mile. If you take that as an analysis, the debate should be not about how should we protect content and applications but really how should we introduce competition in the last mile. Ever since brand X was decided, all these content applications and device manufacturers have been pouring money into alter your broad band and the OC data suggests the same.

>>MALE SPEAKER
Obviously getting the spectrum into use and allowing people to create products with it is very important, and certainly improves the communications packages available to consumers. Will wireless be a compliment or substitute? I don't know. Wireless trenches are sometimes substitutes and sometimes compliments to standard telephone service. It's not clear. What is clear is that just -- if you get some wireless and you get one, maybe two competitors out of it, that the debate will not stop. Public policy will continue on network neutrality. Does it solve the problems of network, does it complain about the network neutrality? Maybe. Okay. Let's say it's yes. Will it stop the debate? No, it won't. Because today we found out that network neutrality is about unbundling. From EarthLink. Okay. We can append all kinds of things to network. I just don't like the way this market looks. It doesn't suit me so I want something more. Okay? We've heard that today. What's -- this brings me to a somewhat related point which I didn't get to mention earlier and that is some people need to get -- stop arguing about the economics of this issue. Okay? We have issues about privacy today. I don't care what the economics is and what the market structure is and how many competitors you have. Privacy is an important issue. When we get dogged down in economic argument debates and attacking duopoly and all these things you don't know about, or just cloud the minds of people and say privacy is important, I don't care what. I don't care about any of this. Okay? Democracy is important. The first amendment is important. Clear of all these incentives to discriminate, clear of all the incentives of sabotage, free speech is important and we need to keep an eye on it. Why not argue that? Okay? I mean I'm wondering why Harold Feld keeps arguing about the economics. He doesn't have to go there for his story. Okay? It's privacy. The guy from Texas, we don't have to go there for that story. They are legitimate and independent of whatever cookie incentives we can come up with in this business.

>>MALE SPEAKER
(inaudible).

>>MALE SPEAKER
That's what I'm saying. Let's talk about that. Talk about, because that is, that has value itself. And the only clouds --.

>>FEMALE SPEAKER
Okay. Please do not, you know, just shout things out. Thanks.

>>MALE SPEAKER
Sure. I'll just I think echo what both the other panelists said. I think changes in spectrum policy have a lot of potential. I think in general absolutely. It's worth considering and having a full debate about what kind of policies could promote more bandwidth deployment. I think it would be particularly useful to focus on deployment of sort of ordinary Internet access that's neutral and that has some of the benefits that I've talked about. But you know, other services being rolled out, too, is beneficial and I think having more spectrum available creates a lot of avenues for all of that.

>>MALE SPEAKER
So I don't really have that much to add. Except for the way that spectrum is used. You know the reason as a rhetorical tool. And I think this relates to what Mr. Ford is speaking about. You know, the reason I think people start talking about competition is you will have people come up here and say because of the spectrum options in no time flat this will not be a problem at all so therefore this should never be discussed. We shouldn't inspect and worry about any of these things. But for people -- people are put into a lens where they feel that if there is going to be competition in this market there can't possibly be any social problems. But that's just not true. As you just pointed out. There may be fraud problems, there may be privacy problems, there may be all kinds of problems that show up. Whether or not we have these miraculous spectrum options or not. I also think that there is a certain level of disingenuity, that's not the right word. There is a tendency to look at what might happen in the future so for that reason we can't talk about the present. You know, I heard John Thorne was here earlier saying, you know, however, broadband over power line is, you know, spreading across the country like wild fire. I've been hearing that for 10 years. I've never met anyone who has a connection broadband over power line. It's been use ad million times to say therefore what are we talking about anything here. I've never met a single person in my life. Does anyone in this room have broadband over power line? I mean does anyone have this does anyone have this? So why do we allow that kind of discussion of that or spectrum options to kind of distract from the debate about, which I think is right, about what kind of networks this country should have. These are innovation policy issues and they are infrastructure issues. I think they are marginally competition issues. But the reason I think to talk about it is it's kind of crazy to talk about these, you know, options and so on as if they are, you know, sort of a pressure gauge or some relief for any kind of potential problems that might show update ask who should pay --.

>>FEMALE SPEAKER
I wanted to say, but to the extent that people are saying the problem is the lack of competition in the last mile.

>>MALE SPEAKER
Right.

>>FEMALE SPEAKER
And if there is, you know, entry about to happen or a sufficient amount to discipline, you know, what a wired last mile provider can require, or can offer its consumers, isn't that relevant?

>>MALE SPEAKER
I'm not saying -- it's obviously irrelevant how many market players there are. I'm just saying it's dangerous to look at, you know, broadband, sources that are potential possible future sources and overemphasize them as if they are here right now or to look at entities that are under 1% of market penetration if that and say see, we have no problems whatsoever.

>>MALE SPEAKER
I have a problem with that. I think you are right to some extent that there is a lot of exaggeration and I think what sit, 2900 broadband power line subscribers today. But you got to remember that the history of cable regulation and franchise reform was based out of overbuilds in less than 2% of markets. So just because it's in some places and not in others doesn't mean it's irrelevant. We learned something from that limited competition. If we observe -- I mean cross-sectional variance is very important to understanding problems because theory often doesn't give you a solution. You need empirical evidence. And if we observe, for example, that A at the present time or Comcast behaves differently in a market where there is a broadband provider or it behaves just the same, price doesn't change or anything like that, then we can say something about the market where the guy is not. Okay? If price doesn't go down with the addition of a competitor then the duopoly provided you with the full benefits of price competition. Okay. So it's not irrelevant. It can certainly be overblown and overstated. Okay? But it's not irrelevant. I mean you recall the VoIP, you know, I used to say that about VoIP. Oh, VoIP is always around the corner. It's always around the corner. We were trying to buy this stuff and nobody could provide it to us. Bam, all the sudden. It was there. You were like darn, that kind of came quick. And it put an end to the whole unbundling regime.

>>MALE SPEAKER
I agree.

>>MALE SPEAKER
I ask the commissioner if she. Hypothesize a 5% increase. When it comes in it's part of the packet. Where Sprint is making a multi billion commitment to come in by the end of 2008 that's a reasonable time frame to have. With the we bit, I once wrote a paper thinking satellite might be some help. I'm much more humble about that. I'm humble about technology generally. I guess my point would be if we are going to be skeptical about the potential concentration entry, the threats to competition apply as well, equally contingent. I guess the reaction of rule of reason is to let stuff happen until someone shows an anti-competitive effect. That includes both the entry and try to hypos -- hypothesize what's going to happen and also the anti-competitive practices.

>>MALE SPEAKER
That's fair. I was objecting to exaggerated use of this. We both agree you point to 2900 consumers and say therefore this problem with consumer fraud can't possibly exist. It's going to go away or whatever, privacy, whatever problems you want to talk about. I think we agree.

>>MALE SPEAKER
There is a long history of that.

>>MALE SPEAKER
I want to address your second question which is interesting and one that we're not going to have a lot of time to discuss. This question of who is going to pay for what. I think maybe the next generation and maybe what people should start thinking about network neutrality is this question of pricing. I mean really at some level. Someone wrote a great paper on this, unfortunately I reviewed it anonymously so I have no idea whose it was but maybe it's someone in this room. There are a lot of similarities if you study this properly between the questions of -- at some level between the questions here and the questions of pricing in general in telecommunications. One way of putting this is the Internet has grown naturally for some reason, maybe by design, a bill and keep system. Right? It is a born bill and keep system. The way it is now is that Google has an ISP, it pays, you know, several million, maybe billions, probably tens of millions of dollars to its ISP. That is its customer. That's who it pays. On the other end of the network you pay your local ISP somewhere between 30, $, something like that, for access to the network. The whole network neutrality debate or lat least the prioritization is about whether your ISP can charge a termination fee to Google. Right? That is what it's all about. I mean a lot of this prioritization, complicated words, discrimination, a lot of it has to do with whether or not termination fees could be charged. I think there is a lot of strong arguments for bill and keep in general, right around everywhere, and it is, you can call bill and keep a form of price regulation, you can also say it's a big zero, that is you are not allowed to charge termination fees. You have to allow them, you know, you have to allow the customer, them to reach you. So I think that sort of maybe is a useful direction for this debate to go is ask whether or not we want terminating, companies that have terminating monopolies over their customers, companies that have their customers, to be able to charge, if we want to reach those customers, which is the same issue we're facing in other areas. Maybe that's a very useful way of thinking about this. So who funds the network, we have the same question. Then I think that people, I think there are -- I could be wrong and I'm interested in what people have to say about this. I think there are distortions that are introduced when you have companies charging people and not their customers.

>>SPEAKER
I think you have a huge problem when you outlaw an entire class of commercial tracks. I don't know why -- I can see the content providers have this fear. Okay. And there are certainly cases where those fears may be based in legitimate economics. Okay. But I also see opportunities to get something that they might want through some kind of transaction with a provider. And if you make the rule very broad, I mean if you look at the current proposals, I mean, you know, AT&T couldn't contract with McAfee to provide a virus software, despite the weirdly added appendage to the end, I'm taking this from my lawyer by the way, you couldn't do it because that would be an exclusive arrangement and that includes applications on Web and virus software is an application available on the Web, they can't necessarily have everybody, you mean I got to deal with everybody and it costs me money to do all this? It's not obvious it's a good thing in ha blanket way. Now to say we're not going to do anything, you know, is that too far the other way? I mean they are trying to find out, well, we've got to find middle ground. What's middle ground? I think in the end let's see what it looks like, you know. I don't know where it is but I know it when I see it and that may be the best route to go. Like we say, it's not a per se violation.

>>FEMALE SPEAKER
I wanted to give -- I.

>>MALE SPEAKER
I keep forgetting to mention this. That paper I talked about and the FAX fact side is outside, it's the wireless paper. I just wanted to mention it. It's out on the table.

>>FEMALE SPEAKER
I wanted to give David and Christopher a last chance if you want to weigh in on who funds the network.

>>MALE SPEAKER
At the risk of make a prediction which is always hazardous in this busy will make one. Pricing in this industry will become more complex. It's been relatively simple up until now. We've enjoyed relatively low upward pressure on prices because of the overbuilt fiber and we're going to see more innovative pricing more experiment, per minutes, bundles, some form of straight per minute pricing in is in our future. You have the many people here who have written stuff on this but even they would concede, their analyses concede it's not always a solution. I have writing that's actually quite sympathetic to bill and Keith. What we are going to say is maybe the right solution is some places, it may not be the right solution other places. We should allow more flexibility in that.

>>MALE SPEAKER
Sure. I guess my concern is that I do think as Tim said there is some strong arguments for bill and Keith on the Internet. I also wonder if it may not be possible to have a framework that permits some of both. Where you preserve a core Internet capability that has a basic bill and keep system and where nobody has to pay the delivering ISPs for termination fees. At the same time you have the ability of broadband providers to be offering parallel services that are, you know, special delivery type of arrangements with different content providers. You know, off the basis Internet. And you have both options. I think that would be a good way to fund the network while still preserving a basic -- the basic benefits of the pro innovation Internet.

>>FEMALE SPEAKER
I wanted to remind everyone, if there are things you didn't get to mention or to raise, the record is still open for another two weeks. We have public comments. They'll all be posted on the workshop website. So there is your open forum completely. You can put them in there. I wanted to thank the panelists and thank you all for coming. And this concludes the workshop.

• See FTC Workshop Transcript for index