For the week to come. The speaker pro tempore without objection, the gentleman is recognized. Mr. Hoyer mr. Speaker, before i inquire of the majority leader, i want to say at the outset, i have now and have had Great Respect for the majority leader. The majority leader is a person of significant intellect, he cares about this institution, cares about our country and works hard on behalf of the principles which he believes in and which his party believes in. And i have enjoyed the opportunity to work with him. We obviously, as people have seen from the colloquys from time to time, have not always agreed on what we ought to be doing. Mr. Cantor, from the state of virginia, served in his house of delegates, in his General Assembly for eight years. He served there with distinction and then was elected to the house of representatives in 2000 to succeed a good friend of mine, the former mayor of richmond, tom bliley, who mr. Cantor chaired his campaign for at least three cycles. Obviously successfully. He served in the house of representatives since 2001, was selected early on as the chief deputy whip and then became the whip and then after one congress serving the whip, his party took the majority, he was elected the majority leader. It has been my experience during that period of time that he has worked hard, attentive to his members and attentive also to the interests of our country. Again, because we do not agree with one another on how to get to a destination, it does not diminish in any way the commitment of either side to the welfare and best interests of their country and the people we serve. So i want to say at the outset hat i have enjoyed working with mr. Cantor and at times, not always, but we have worked very productively and in tandem with one another for the interests of our country. I want to say to the members of the house of representatives that i expect mr. Cantor to continue to be over the next five months an influential and Effective Member of the congress of the United States. And want to say to my members, his members, and to, mr. Speaker, those who might be listening that i intend to continue to work over the next five months or six months with mr. Cantor on things that he and i can agree on. Because i believe he will remain an influential and Effective Member of the republican conference and a person dedicated to the best interests of this country. I want to also say to his wife, diana, its tough being a spouse. I lost my spouse 17 years ago, judy. And eric is blessed by having an extraordinarily wonderful wife, not only extraordinary in terms of her partnership with mr. Cantor, but also extraordinary in terms of her own talents and intellect and success that shes had in business and in life. They have three wonderful children who follow in their parents success, evan, a recent graduate of the university of virginia, could he have gone to the university of maryland but he chose virginia. Such is life. Jenna, who is senior at the university of michigan, and michael, a secondyear student at the university of virginia. I know that their father will be continually successfully, as he has been thus far in life, and will continue to contribute to his country in whatever capacity he might serve. So i congratulate him on his service in this house. I thank him for the opportunities to work with him as a partner from time to time and as a respectful opponent from time to time. Always realizing that there are 435 of us elected around this country by our people. They elect us because they have some faith and trust that we will represent their views and the best interests of their communities, our states and our country. And so i thank him for his service and now am pleased to yield to the gentleman from virginia, the majority leader. Mr. Cantor mr. Speaker, i thank the gentleman from maryland. Before i talk about todays schedule, i just want to thank the gentleman for his very kind and generous remarks. I too have enjoyed the ability to get to know the gentleman from maryland, steny hoyer, the democratic whip is a tenacious advocate for his cause. I know that these colloquies have at times become heat and long. Much to the dismay of some who would like to make their word known on the floor. But i do want to say its been a privilege. I respect the gentleman from maryland as a friend, as a colleague who has been elected over the years by his constituents to be here to advocate on their behalf and for the good of the country. As the gentleman said, mr. Hoyer and i do not always agree. But i think we do share a love of this country. I think there are plenty of things frankly that we have found the ability to work towards in the fashion that i believe is the best way forward for this institution, which is to look for ways to set aside differences, to find areas that we have in common so that we can produce results for the american people. And again, the democratic whip, mr. Hoyer, my friend, has been a very engaged individual on the issues and its been my and my teams honor to get to work with steny and his team on some of the issues that come before this house that have to be addressed. And i thank him for that. And look forward to continuing relationship the relationship here as i intend to stay and certainly as majority leader to the end of july and then for the rest of my term as a member. But again, i want to thank him for the courtesies and look forward to continuing to nurture the relationship. Mr. Hoyer if the gentleman will yield before he gives the schedule. I want he mentioned his staff. Im not going to mention them by name because i would leave out somebody perhaps. But i will say, mr. Speaker, that mr. Cantors staff and my staff have, no matter what the differences might have been, been able to Work Together in a collegial, effective and productive manner on behalf of this house, i think. And i want to thank the members of mr. Cantors staff for that. They have been always receptive to our discussions, havent always agreed, as no one would expect. But they have been always cordial and effective and worked closely with my staff and we appreciate that and i appreciate that and now ill yield to the majority leader for the schedule. Mr. Cantor i thank the gentleman. Mr. Speaker, on monday the house will meet at noon for morning hour and 2 00 p. M. For legislative business. Votes will be postponed until 6 30 p. M. On tuesday and wednesday the house will meet at 10 00 a. M. For morning hour and noon for legislative business. On thursday the house will meet at 9 00 a. M. For legislative business. Last votes of the week are expected no later than 3 00 p. M. On friday no votes are expected. Mr. Speaker, the house will consider a few suspensions next week, a complete list of which will be announced by close of business today. In addition, the house will consider h. R. 4413, the customer protection and end user relief act, sponsored by chairman frank lucas of the committee on agriculture. Members are advised that debate on the bill and the eight amendments made in order by the rule will occur monday night after the 6 30 p. M. Vote series. However, votes on amendments and passage will occur on tuesday afternoon. For the remainder of the week the house will consider three bills to lower the price of gas and lessen the middle class squeeze caused by Higher Energy prices. These three bills are h. R. 6, the domestic prosperity and Global Freedom act, authored by representative cory gardener. H. R. 3301, north American Energy infrastructure act, sponsored by chairman fred upton. And h. R. 4899, the lowering gasoline prices to fuel in america that works act of 2014 authored by chairman doc hastings. And with that i want to thank the gentleman again and yield back. Mr. Hoyer i thank the gentleman. Mr. Speaker, this is the last colloquy i think that i will be having with mr. Cantor, which is why i spent time because the American Public im sure thinks were all at one anothers throats all the time. And thats very discouraging for them. Very depressing for them. And frankly it is a problem for us here this the house because we dont like that atmosphere. But i want them to know there is respect on each side i think for the other, in most instances. I hope thats the case. But that i do have respect and appreciation to mr. Cantor for his service. But because its the last colloquy, not for the purposes of necessary debate or discussion, but simply want to articulate some of those things that i know we need to address and i hope we address in the coming weeks before the august break. We clearly need to fund the Highway Trust Fund with a sustainable funding source, were running out of money. I think every member of the house does not want that to happen, does not want to have governors around this country shutting down the letting of contracts for needed infrastructure improvement. We need to authorize the exportimport bank. We need to pass comprehensive Immigration Reform which we think will be a positive for our economy and the morally right thing to do. Were still very concerned, mr. Speaker, with unemployment insurance. The minimum wage. The senate has passed an employment nondiscrimination act which we hope will be considered on the floor. The terrorism Risk Insurance will expire in the nottoodistant future. We think both for our economy and for the private sectors growth we need to pass that. And of course we want to complete the appropriation its bills before the end of the fiscal year. And lastly, let me say, mr. Speaker, we will celebrate next week the 50th anniversary of the signing of the Civil Rights Act of 1964. We will celebrate this summer that which is being called freedom summer, to celebrate that move towards a fiscal year and more justings towards a more freer and more just future. We hope we can pass the Voting Rights act which will deal with the ensuring that all people in our country not only have the right to vote but have access to voting in casting their vote. Again, we dont need to gait those issues, but i did want to set them forth, mr. Speaker, because this is our last colloquy before our july fourth break. Again, i want to close, unless the gentleman wants to say something, with thanks to mr. Cantor for his service and for his working together when we saw that as possible and when we disagreed to disagree as coworkers on behalf of this country and i yield back the balance of my time. The speaker pro tempore the gentleman yields back. For what purpose does the gentleman from virginia rise . Mr. Cantor mr. Speaker, i ask unanimous consent that when the house adjourns today it adjourn to meet on monday, june 23, 2014, when it shall convene at noon screeria nigeria. He d5 budget with testimony from defense secretary chuck hagel and joint chiefs of staff chair general martin dempsey. Former fcc commissioner Robert Mcdowell called the internet the greatest deregulation story in history. Today at a house judiciary subcommittee hearing on Net Neutrality, otherwise known as open internet policy. The fcc recently moved forward with a proposed open internet rule that, if fully implemented, would allow for the creation of a teared internet with socalled fast lanes for content providers who are willing to pay more. That this hearing is an hour and forty minutes. The subcommittee on Regulatory Reform commercial antitrust law hearing will come to order. Without objection, the chair is authorized to declare a recess at any time. At this time, well have our Opening Statements. Would you like to go first . If you like, mr. Chairman, id be happy to. Mr. Chairman, thank you for holding this hearing. Regulation and antitrust law have long had an uneasy relationship. Antitrust law serves to protect a competitive process by prosecuting anticompetitive conduct if and when it occurs. Regulation typically dilutes or casts aside reliance on antitrust enforcement and attempts to constrain or direct Market Forces by imposing new rules of conduct. These approaches generally are at odds with each other and a natural tension has arisen between the two. There are few more important issues that will impact the future of the internet than the question of whether to apply antitrust law or regulation to protect the internet from anticompetitive and discriminatory conduct. I want to thank you chairman baucus. Proponents of proposing additional regulation on the internet marketplace argue that it is needed to encourage competition and promote innovation. I am deeply skeptical of these claims. In my experience, regulation generally stifles rather than facilitates competition and innovation. In fact, it is my belief that the internet has flourished precisely because it is a deregulated market. That is not to say that we should stand by and allow companies to engage in discriminatory or anticompetitive activities. I believe that vigorous application of the antitrust laws can prevent dominant Internet Service providers from discriminating against competitors content or engaging in anticompetitive pricing practices. Further more, antitrust laws can be applied uniformly to all Market Participants, not just to Internet Service providers, to ensure that improper behavior is prevented and prosecuted. In 2007, the department of justice expressed its preference for antitrust enforcement over regulation when it warned that the fcc should be highly skeptical of calls to substitute special economic regulation of the internet for free and open competition enforced by the antitrust laws. Doj further stated that regulation could, in fact, prevent rather than promote optimal investment and innovation in the internet with significant negative effects for the economy and consumers. I understand that the nature of the internet and the speed at which the market evolves could prevent challenges to enforcing the existing antitrust laws in the internet context. We may need to consider amending the current antitrust laws to ensure that they can be applied promptly and effectively to protect the competitive nature of the internet marketplace. The Judiciary Committee has long played a role in ensuring that antitrust laws are properly equipped and can be applied effectively in the Telecommunications Industry. This committee will continue to play a key role advocating for strong antitrust enforcement and certainly will examine these issues closely to the extent telecommunication laws are rewritten over the coming years. I look forward to hearing from todays witnesses on this important debate and i yield back the balance of my time. I thank you the chairman of the full committee, mr. Goodlatte. Now i recognize the Ranking Member mr. Hank johnson of georgia for his opening statement. Thank you ma, mr. Chairman, modern internet is a powerful engine for social enrichment and i would argue for basic freedom in america. And perhaps in other locations throughout the world where the culture has attained this degree of intellect and innovation. Whether its Educational Opportunities like the Academy Channel on youtube, starbucks recent announcement to offer its employees a Free College Education online through Arizona State university, or online consumers benefitting from content services that educate, enrich, and connect us to together. Its no mystery why the United Nations lists Internet Penetration as a key metric in reducing poverty we all succeed when more members of society have access to such important tools online for productivity, education and, indeed, personal wellbeing. Thats why todays hearing is such an important opportunity to discuss the best path forward to advance an open internet. I strongly and unequivocally believe in an open internet. Openness goes beyond economic concerns like growth and competition. Openness embraces our very core values as americans. Equality of opportunity. If our ideas are good enough, they should have a chance. Openness also separates us from closed autocratic societies that limit the educational and social opportunities of their people. Look no further than the great firewall of china which has established barriers to free expression, education, and Cultural Enrichment and stunted the opportunity and growth of chinas people. Undoubtedly, antitrust agencies have certain advantages like a prosecutorial mindset and a removal from political influence that make them attractive as regulatory watchdogs. But as tim woo will testify later in todays hearing, the current framework for antitrust law is designed for every kind of business in the world but is a poor fit for noneconomic values like openness, freedom of expression, and, indeed, equality. And freedom. It is also abundantly clear that the remarkable Success Stories of the first large internet startups, google, amazon and yahoo were not written in a regulatory vacuum. Rather these companies benefited from a regulatory ecosystem that encouraged the widespread deployment and adoption of broad band internet. As an Expert Agency with 80 years expertise over Telecommunication Services and more recently Information Services like that internet, the federal Communications Commission has been at the forefront of crafting regulations that not only encourage gret and competition but also advance noneconomic vams like equality of opportunity and fairness. Indeed, as the d. C. Circuit recognized earlier this year in verizon versus fcc, regulations that ensure internet openness have fostered a virtuous circle of both social and economic fruit. Although the court ultimately vacate it had open Internet Order in verizon, the d. C. Circuit strongly upheld the commissions basis for promulgating Net Neutrality rules under section 706 of the Telecommunications Act of 1996 precisely because Congress Mandated the commission to encourage broadband deployment to advance this Virtuous Cycle of social and economic growth. There is little doubt in my mind that the d. C. Circuits blueprint in verizon amply demonstrates the commissions authority to promulgate rules to protect the open internet through its section 706 mandate. But the commission shouldnt have to rely on this authority alone to uphold a common goal and countless americans excuse me. But the commission shouldnt have to rely on this authority alone to uphold a common goal that countless americans share. There is wide bipartisan agreement that updating the Telecommunications Act of 1996 is long overdue. Yes we all enjoy the thrill of logging on the aol, or we enjoyed the thrill of logging on to aol or other Internet Service providers over our dialup modems in the 1990s, but the internet has changed since then. So should our laws. In closing, i thank the chair for holding todays hearing as the Sole Committee with jurisdiction over antitrust law, i look forward to working together with my republican colleagues to ensure that the next Great Communications act upholds the common principles of competition and opportunity and i quality of freedom. These being things that we all share. I look forward to todays testimony and i yield back. I thank the gentleman from georgia. I want to welcome you tow the hearing today. The hearing today is entitled Net Neutrality is antitrust law more effective than regulation and protecting consumers and innovation . So were not dealing with the whole subject of Net Neutrality or some time may be more descriptive network neutrality. A lot of people dont know what the net is but i think it refers to the network. Batch chief justice. Our focus is not on any regulatory proposals although they will undoubtedly be referred to during the hearing. Rather, the interest of if Judiciary Committee is whether the application of antitrust laws would be more effective approach to protecting consumers and promoting innovation in this arena than the long frequently contentious and sometimes arbitrary federal regulatory process. The internet is a wonderful education tool. Theyve always had interest because of policies they raise. As a railroad attorney, ive studied the railroads and that was always a struggle between the history of the rails and regulation and many of you who know that industry overregulation almost killed the industry before the steigers act and it revived itself only because of a scaling down of regulation but even today there are tremendous issues . That industry as well as this industry on public interest, public safety, et cetera. And these issues with the network to deal with issues including access, competitive balance and the tension between private interest, public interest, between regulation and innovation so its always a balancing act. On may 15, the federal Communications Commission proposed a rule marking his third attempt to address the issue away from Net Neutrality. Its two previous attempts were struck down by the courts. As regulatory proceedings continue to stretch on, a question i have is whether there may be a more efficient and more effective way to safeguard against potential discriminatory behavior than federal rule making. That is where antitrust law comes in. Antitrust law has a number of benefits to consider. Antitrust law and the standards applied by the courts have developed, evolved and been refined over decades. This stands in contrast to newly proposed regulations that include untested definitions and approaches which would be interpreted and enforced by constantly rotating commissions and the courts monooccasions would be dealing with cases of First Impression as opposed to establish case law. Antitrust law uniformly applies to all participants in the internet marketplace. A recent fcc regulation, by comparison, would only apply to a Smaller Group of Internet Service providers. Antitrust law prosecutes conduct once it occurs and determines on a case by case basis whether a violation has occurred regulation is a one size fits all approach and imposes a burden on all regulated parties regardless of whether the parties actually engaged in that conduct. Then you have the different approaches that Different Countries take although the internet is a worldwide system. Antitrust law violations may be brought by both private actors and enforcement agencies equipped with lawyers, economists, technicians who have decades of experiencing releasing anticompetitive conduct. Regulatory violations typically may be pursued only by select group of defined part iies. Notably the fcc only has one single Administrative Law judge. Thats something that i was not aware of before this hearing. These are only some of the factors that should be considered when determining whether a antitrust or regulatory approach should be taken to protect Internet Users from anticompetitive conduct. Todays witnesses are very distinguished and have perspectives from each of the relevant agencies, the fcc, the federal trade commission and the department of justice and i notice commissioner wright is here so we actually have one of our sitting commissioners, im glad youre joining us. I look forward to hearing their opinions on how to use antitrust laws to protect consumers and innovation. That the time id like to recognize our panelists. At this time id recognize the gentleman from michigan, mr. Conyers, the Ranking Member of the full committee, former chairman for his Opening Statements. Thank you so much, chairman Spencer Bachus for holding what i consider an important hearing on Net Neutrality and the role of antitrust in ensuring a free and open internet. This should be a very interesting hearing to say the least. This committee has a central role in studying the issue of Net Neutrality and more generally competition on the internet and i appreciate the chairmans decision to assert our jurisdiction. Turning to the specific question of whether antitrust is more effective than regulation in addressing Net Neutrality, we should keep in mind that we need a regulatory solution to address potential threats to Net Neutrality and must allow the federal Communications Commission to do its job congress created the fcc to develop expertise so that it can properly regulate the complex Telecommunications Industry. Any fcc rules to address Net Neutrality would have the benefit of addressing some potential threats to Net Neutrality before they fully materialized. And it could do so in a manner that would be more comprehensive than the piecemeal approach of antitrust enforcement additionally, having a set of best practices enshrined in rules would provide certainty for the industry the fccs efforts therefore must be given the opportunity to develop it and developing its rules to ensure a free and open internet the fcc should incorporate the following principles. Broadband Network Providers should be prohibited from failing to provide access to its Broadband Network for any provider of content, applications, or services on reasonable and nondiscriminatory terms. Broadband Network Providers should be prohibited from blocking, impairing or discriminating against or otherwise interfering with the ability of anyone to use a Broadband Service to use or access lawful content applications or services on the internet. And there should be strong transparency requirements regarding clear disclosure to users of information concerning any term, conditions or limitations on the Broadband Network service the fcc began its rulemaking process only a month ago and so we must give time to allow this process to proceed. To the extent that we do look to antitrust law as a way of ensuring Net Neutrality enforcement of existing antitrust law would be insufficient. Under current antitrust law there is relatively little that antitrust enforcers can do outside the merger review context to address the conduct of a regulated industry like broadband Internet Service with respect to enforcing Net Neutrality principles. Through a series of decisions the Supreme Court has limited the potential to successfully pursue claims under the sherman antitrust act arising in the Net Neutrality context. Moreover, exclusive reliance on antitrust enforcement while having the benefit of a more nuanced and factspecific approach to the problem would also be a cumbersome more limited more resource intensive and afterthefact way to develop a Regulatory Regime for Net Neutrality another potential approach would be for the federal trade commission to use its authority under section 5 of the federal trade Commission Act to stop unfair methods of competition. While i hold an expansive view of section 5, to the extent that this approach goes beyond the scope of the sherman act or other antitrust laws it would be very controversial as some of my friends on the other side of the aisle would be the first to note. Moreover, antitrust law is not sufficiently broad in scope as it does not address the noneconomic goals of Net Neutrality. Including the protection of free speech and political debate our former chairman of the judiciary, James Sensenbrenner and sow lofgren and i introduced Bipartisan Legislation in 2006 to strengthen antitrust laws to address Net Neutrality in part because the fcc was doing too little at that time in my view and i certainly opened im certainly open to suggestions on how antitrust law can be better tailored to address Net Neutrality concerns. But if we go down that path current law must be modified to codify Net Neutrality principles. So whether one supports a more antitrust approach or a more regulatory approach, insaks by congress and regulators is not an option as potential threats to Net Neutrality remain present. And in my Opening Statements in 2008 and 2011 on this very same issue i noted that many parts of our country in many parts of our country consumers have the choice of only one two broadband Internet Service providers that effectively function as monopolies or due woplies. I noted then that the market power that these broad providers enjoyed could lead to differential treatment of content carried by the provider depending on how much a customer pays or the financial incentives for discriminating for or against given content. The concerns i noted may have only grown since then, particularly in light of increasing consolidation in the Telecommunications Industry that may result in even less choice, less innovation, higher costs and more power in the hands of the fewer broadband providers and having given you that impartial view of my position on this matter i yield back the balance of my time and thank the chairman of the subcommittee. Thank you very much. And ive taken the chair for mr. Bachus who was called away for votes in another committee that he serves on. Without objection, other members Opening Statements will be made part of the record. Weve really got a great panel today and id like to begin by introducing our witnesses. Commissioner josh wright is a sitting commissioner at the federal trade commission. He was sworn in january 1, 2013, to a term that expires in september of 2019. Prior to joining the commission, commissioner wright was a professor at George Mason University school of law and held a courtesy appointment in the department of economics. He is a leading scholar in antitrust law, economics and Consumer Protection and has published more than 60 articles in book chapters, coauthored a leading case book and edited several books and volumes focussing on these issues. Commissioner wright also served as coeditor of the Supreme Court economic review and was a Senior Editor of the antitrust law journal. Commissioner wright previously served the ftc in the bureau of competition and was inaugural scholar in residence from 2007 to 2008. Hes focused on Enforcement Matters and policy. His return to the ftc marks his fourth stint at the agency after having served both in the bureau of economics and Bureau Competition from 1997 and 1998 representatively. Prior to his tenure at george mason commissioner wright clerked for Justice James sell that of the u. S. District court for the Central District of california. Commissioner wright graduated with honors from the university of california, san diego, and received his j. D. And ph. D. From ucla. Mr. Robert mcdonald commissioner mcdonald is former commissioner of the federal Communications Commission. He was appointed by president s george w. Bush in 2006 and barack obama in 2009 and unanimously confirmed by the u. S. Senate each time. His second nomination made him the first republican appointed by president obama to an independent agency. During his tenure at the fcc, commissioner mcdowell worked continuously to forge bipartisan consensus in adopting policies to promote economic expansion, investment, innovation, competition and Consumer Choice the Washington Post called him an independent force at the fcc. While broadcasting and cable magazine described his tenure as statesman like. Commissioner mcdowel has been a member of the u. S. Diplomatic negotiation working on treating International Conferences covering Global Spectrum and telecom policies. Prior to joining the fcc, commissioner mcdowell worked in a senior position in the Telecommunications Industry for 16 years. He graduated qume laud from Duke University and received his law degree from the college of William Mary School of law. Professor bruce owens 1 morris m. Doyle centennial at Sanford University and a seine juror fell flow the Stanford Institute for Economic Policy research. He directs the stamford Public Policy program which offers Public Policy degrees. Professor owens was the chief economist in the office of Telecommunications Policy at the white house under president nixon as well as the chief economist in the antitrust division of the department of justice under president carter. Following his public post, he taught economics at both duke and stanford. Professor owens as published numerous books and articles on mass media economics, telecommunications and regulatory policy among other topics. He earned his pitch a dee at stanford. Welcome. Professor tim wu is a professor of law at Columbia Law School in new york city he teaches Communications Law and intellectual property. Professor wu has taught at the law schools of harvard, stanford, university of chicago and university of virginia. Professor wu recently served as a Senior Advisor in the competition and Consumer Protection division at the federal trade commission. Hes widely credited with coining the term Net Neutrality through the publication of his Paper Network neutrality, broadband discrimination. Professor wu clerked for judge Richard Posner at the seventh court of appeal and Supreme Court Justice Stephen breyer. Professor wu received a bachelor of science degree in bio chemistry from Mcgill University and his law degree from harvard magna qukuqume law day. Each statement will be entered into the record in its entirety and i ask each witness summarize your testimony in five minutes or less. You have some indicators in front of, you much like the traffic signal, green means go, yellow means hurry up and red means stop. Well get going and start with commissioner wright. Youre recognized for five minutes. Chairman goodlatte, chairman bachus, Ranking Members conyers and johnson and members of the subcommittee, thank you for the funt to appear before you today. My name josh wright. Im pleased to join you to discuss competition and regulation in the broadband seconder and more specifically the issues highlighted by the ongoing debate surrounding Net Neutrality. I should make clear at the outset that the views i express today are any own and dont necessarily reflect the views of the federal trade commission or any other commissioner. Today ill focus my comments upon competition policy and regulation and broadband markets from a consumer welfare perspective. Consumer well surfacetoair the load star and it guides Decision Making at the ftc. The consumer welfare approach harnesss the power of rigorous economic analyses to inform competition policy and antitrust. This emphasis on consumer welfare makes antitrust particularly well suited for tackling complex issues and questions relating to broadband competition and addressing the important issues raised in the Net Neutrality debate. More specifically. The rule of reason Analytical Framework that lies at the core of modern antitrust analysis can be deployed effectively to analyze Business Practices in the broadband seconder and to separate conduct that increases consumer welfare from those Business Practices that make consumers worse off. The Net Neutrality debate concerns the competitive effects of what economies would describe as vertical contractual arrangements between broadband providers and content providers. Put another way, its about the fear broadband providers will enter into arrangements that disadvantage certain content providers, harm competition and thereby leave consumers and Internet Users worse off. For example, a broadband provider might enter into an exclusive contract with an online video site to foreclose a rival video site access to the subscriber. This type of concern is grounded in antitrust economics and in the raising rivals cost literature familiar to all students of antitrust. Proponents of Net Neutrality traditionally have responded to these types of concerns by favoring a rigid categorical ban or other significant restrictions upon providers ability to enter into vertical contractual relationships. Fearing any Network Discrimination by broadband Providers Creates harm, theyve argued for a one size fits all approach prohibiting such arrangements. This approach fails to recognize the fundamental economic point that most vertical contractual relationships benefit consumers. The economic literature is replete with examples and empirical evidence that vertical contracts create consumer benefits by reducing double marginalization, preventing free riding, facilitating new Business Models and entry and aligning manufacture and distributor incentives. Consumers benefit from these because theyre passed on to them in the form of lower prices, increased output, more content, Higher Quality and greater innovation. Moreover, considerable empirical evidence further supports the view that vertical contracts ar competitive. This cuts sharply against the idea that broadband providers necessarily will use such arrangements in a way that harms competition. The way the Marketplace Experience and learning also demonstrates that socalled nonneutral Business Models deployed by providers have proven highly beneficial to consumers. For instance, in 2002, a fledgling google was able to strategically achieve economies of scale by beating out its competition in a bid to become the default Search Engine on aol. Then the countrys leading Internet Service provider, by offering a substantial financial guarantee. To be clear, the economic literature and empirical evidence doesnt claim that vertical contracts never create competitive concerns the correct question is whether it can harm consumers but rather what regulatory structure and legal rules will promote consumer welfare in this context. Any answer to that question must begin with the fundamental observation and Market Experience that the Business Practices at the heart of the Net Neutrality debate have been procompetitive. In light of the economic theory and evidence. Antitrust offers a superior Analytical Framework to address competitive concerns in the broadband sector. Antitrust jurisprudence has been evolved to highly sophisticated rule of reason for investigating whether vertical arrangements are anticompetitive in practice. The rule of reason framework is a flexible one that allows consumers to benefit from the vast number of vertical agreements that help consumers by creating a means grounded in sound economics and evidence for identifying those contracts that harm consumers. In closing, its my belief that antitrust offers a superior approach to addressing anticompetitive concerns and broadband markets in a manner that achieves the best result for consumers. Ill be happy to answer any questions. Thank you. Thank you, well now go to commissioner mcdowell. Can you turn your microphone on . Thank you, its an honor to be back here. At the outset i should make clear that its my hope that the internet remains open and freedom enhancing as it has been since it was privatized in the mid1990s. As it migrated further away from government control it proliferated beautifully growing from just under 90,000 users in the late 1980s to approximately 3 billion users globally today. Its success was the direct result of the clinton administrations bipartisan policy to keep the governments hands off of the internet sect or in short, the internet is the greatest deregulatory Success Story of all time, in my view. When it comes to the Net Neutrality debate its important to remember that nothing is broken that needs fixing. The fcc is pursuing new rules without the benefit of a comprehensive Peer Reviewed economic study, something i have called for time and again over many, many years. If there is systemic market failure, lets discover that through a datadriven process in 2007 the federal trade commission examined the market and in a unanimous and bipartisan fashion found that there was no market failure. While eloquently warping against new rules that may produce harmful up intended consequences. A report whose lead was another staffer. Instead of making new and untest ed and collateral regulation of the entire internet seconder our Public Policy should rely on what has worked so well for every other aspect of the highly complex American Economy those laws are effective, enjoy a century of courttested legal precedent and can be administered by the federal trade commission at the same speed or lack thereof as the federal Communications Commission other state and federal statutes in common law offer powerful Consumer Protections such as those cover ing breach of contract, tort interference with contract, deceptive trade practices, fraud and much more. For instance, if isps were to breach their terms of swfs their customers the plaintiffs bar would have a field day launching an unaccountable number of class action lawsuits. Additionally, having in part of official u. S. Diplomatic delegations to negotiate treaties and the communication space as well as being an International Blue ribbon panel on internet governance i can personally attest to the influence of the Net Neutrality debate to regulate all corners of the internet. The ongoing prospect of new Net Neutrality rules has generated thinking throughout the world that more regulation in the internet ecosystem should be the norm some internet regulation appears to be a one way ratchet. Lastly, today i offer a warning. Some Technology Companies that are pushing for classification of Internet Access as a Telecommunications Service under title two of the Communications Act of 1934 should be careful what they wish for this section of the Communications Act is not only antiquated, in fact the fcc to celebrate its just celebrated its 80th birthday yesterday, but its particularly powerful. Printive, far reaching and by some accounts has over 1,000 requirements. Tech and Telecom Companies have converged and companies that today are calling for regulation of their rivals and naively think they wont get swept up in title ii regulationings themselves could wake up having to live under its mandates. As a technical and business matter, Transmission Services and Information Services are quickly becoming indistinguishable. Across the globe content Application Companies are falling under the purview of more and more regulations and court orders. In conclusion, whether creating new rules or foisting antiquated laws on new technologies, the end result would be counterproductive and create uncertainty and unintensed consequences. A better path would be to rely on timetested antitrust and Consumer Protection laws that have helped make the kmern economy the strongest and most innovative in the world i look forward to your questions. Well recognize professor owens for his five minutes. Your microphone, please, sir. Thank you, mr. Chairman. You probably need to bring it close. The accuse i cans in here are odd. Net neutral city a seductive slogan. Its meaning seems quite protean. It adjusts like a mutating virus to fit the defenses of the body against it. I think its more commonly called common carrier regulation. That means a public utility that everyone has a right of access to in nondiscriminatory terms. We have a lot of experience with common carrier regulation in the United States. Starting with the first regulatory legislation in 1887. The act to regulate commerce which created the interstate Commerce Commission and began the regulation of railroads. The fact is that none of that regulation stopped discrimination. In fact, under the act it was much worse or much more extensive than when it began. Moreover, like many other industries, the Transportation Industries became embedded in the political economy of the regulatory structure. The loudest voices affecting transportation policy in washington were the railroads, the Trucking Industry itself. And before very and before very long, before the depression, in fact, we had a series of regional monopolies or cartel carte cartels overseen and refereed by the regulator and the results were consumers were not good. Consumers were clearly worse off. They paid higher prices, output was reduced, entrants were kept out and innovation was resisted because you had to get aa license from the icc to compete in the transportation business. And one of the things they took into consideration was whether the current incumbents would be harmed. The issue is not whether customers would be benefitted but whether incumbents would be harmed. The same thing happened in telecommunications. In telephone regulation in particular it came to be true that the interests of at t, the old bell monopoly that was broken out in 1982 were primary at the fcc and the interest of consumers were definitely seconda secondary entrants were excluded, technology was excluded or slowed and consumers lost in order to benefit the incumbent monopoly. We dont have a good history with regulation even where theres a lot of con seine trags in the industry. I think therefore we have to be careful before imposing regulation. The first stop, the presume in our economy is competition and the promotion of competition by the government is the ideal way to go and if that fails which it can do then we turn to regulation reluctantly as a last resort to solve a serious and otherwise remediable market failures. We dont start with regulation so theres no particular evidence that competition isnt working in the parts of the Telecommunications Industry devoted to internet supplies theres evidence that competition is increasing because of technology, in particular the growing use of portable devices supported by Broadband Wireless service the capacity of wireless Broadband Service to serve the needs of consumers in competition with wire line Internet Access providers is limited only by the fcc which is in control of the spectrum that can be devoted to that use. If wed like to see more competition than we already have in local Broadband Access to the internet the first thing to do is to increase the spectrum available to wireless providers. Technology will also help with that as we move to the fifth generation of Wireless Service well provide greater amounts of Service Within roughly the same bandwidth. Antitrust policy promotes and protects competition regulation, whatever its intent and however well meant has the practical effect of suppressing competition antitrust promotes and protects innovation that makes it easier to answer an industry when that would benefit consumers regulation, whatever the intent of it may have been, tends to suppress innovation in the interest of the incumbent regulated firms. It seemed clear antitrust is an effective way to preserve competition. One of the great victories of antitrust in the last century was breaking up the bell system monopoly the result of which was a huge increase in competition both at the local level and in Long Distance service and more importantly unleashing the forces of innovation. The Bell Telephone monopoly was a great inventor. Bell labs was a wonderful source of invention. Professor, if you could wrap it up, we need to try to stay on our time here. Im sorry. But it was a reluctant innovator at t didnt become an innovator until after it was largely deregulated after the breakup. Thank you, mr. Chairman. Thank you, professor. Well go to professor woo wu. Chairman, Ranking Member, members of the subcommittee, thanks so much for holding this hearing. I welcome the opportunity. I can summarize my comments in a few sentences. I have the highest admiration for the antitrust laws and the agencies enforcing the antitrust laws but i dont think theyre equipped to handle the broad range of values and policies that are implicated by Net Neutrality and the open internet. J us to take a sample, what im suggesting is that when this when we consider internet policy what what were really considering is not merely Economic Policy, not merely competition policy but also media policy, social policy, oversight of the political process issues of free speech. There are a wide range of noneconomic values that i fear that the antitrust law, despite its expertise, despite the decades, indeed over a century of law making in that area simply does not capture and for that reason i think that despite its imperfections we should stick with the process of fcc oversight of the internet and enforcement of Net Neutrality rules. So let me break some of these ideas out a little bit. First of all, as i said, i have enormous appreciation for the antitrust laws and the agencies that enforce them. I served for some time at the federal trade commission and i think there are some advantages that the fcc could learn from in this area. Theres a commendable insulatio. The adversary process is very well handled. I think the fcc does a very good job at what it does. The problem is with the continuation cc and other antitrust agencies is that they are optimized for two kinds of problems, and that is the protection of consumer welfare through the competitive process. And this is obviously a worthy goal. Im not going to sit here and say we should take competitiveness out of the process. Thats terrific, and its particularly accomplished by focusing on a complex and very sophisticated economic analysis, which again i commend when were considering only the issue of competition. The problem is in its day to day operation, the internet implicates a whole host of nonimplemented values of antitrust laws. Lets imagine we had an Internet Service provider that for its own reasons decided it did not like political speakers on one or another side of the spectrum. Lets say we had a different isp that, for whatever reason, believed that local news sources were more valuable than the National News sources and decided to favor them. Or lets say we had an isp that had a bias in favor of big speakers as opposed to small speakers for whatever reasons. Or maybe just something totally irrational, like it just thought the new york rangers were a better hockey team despite losing the stanley cup to the l. A. Kings and so tried to adjust the coverage around the sports. Whatever it was, these are the kinds of issues, whether political, social, sports, whatever, you name it, that simply do not register in antitrust analysis. Because if you have political bias, it doesnt necessarily give a competitive advantage to the isp. So what im trying to suggest here is that at stake in that neutrality debate is really protection of the american political process. And protection of the United States as an open society. And we cant accomplish that simply we cant leave a matter that important to the economists. Thats what im trying to suggest. I have Great Respect for economists, i have Great Respect for economic analysis, but i want to suggest we cannot leave the multiple values at stake in American Society and our political process to mere economic analysis, and ill close my comments right there. Thank you very much. Thank you very much. We will now recognize the chairman of the full committee, the gentleman from virginia, for the first round of questioning. Thank you very much, mr. Chairman, for your forbearance, and professor, while i disagree with much of what you just said, particularly the thought that as has been attempted in the past, regulating the content offered by broadcasters on television and radio, which was a very popular thing to do in the past, and now that that has been pushed aside to allow for freer speech, i would suggest to you that we have far greater diversity of opinion expressed in that traditional market, and the thought that we would need to have fcc commissioners regulating content on the internet to make sure that somebodys avenue to access to the internet was fair and balanced would be, to me, an extraordinarily harmful thing to do. But i want to commend you on one thing, and that is youve picked a name for this subject, Net Neutrality, that stuck. Ive been at this issue for a dozen years. Congressman rick boucher and i introduced legislation before congressman conyers and congressman sensenbrenner did a few years ago. We called it open access. And i think we would agree that the internet should have open access to all the competitors and all the consumers and have access to it. So let me direct a question first to commissioner wright. Its been reported that during peak hours, netflix traffic accounts for approximately a third of all internet traffic. When i saw that recently, i was amazed. I think thats a great credit to the popularity of netflix of whom i am one of their customers. This amount of traffic could be indicative of a significant market position. One of the reasons that antitrust law holds more appeal than regulation is its ability to prosecute Improper Conduct by all Market Participants, not just a select few. And im not in any way suggesting that netflix has an improper market position. But to the extent netflix were to use its market position to engage in anticompetitive behavior, would antitrust law or existing or proposed regulation be more effective at policing Improper Conduct . Thank you, chairman. I appreciate the question, and house of cards is quite a show. So whether it grants netflix market power, i think is a question that is one that the place where antitrust analysis began with such a question is what the antitrust laws do with respect to market power is say that if a firm achieves its market position by innovation, by building a better mousetrap, by making a content that benefits consumers, this is the type of conduct that the antitrust laws celebrate rather than condemn. The antitrust laws step in when a firm with market power abuses it in such a way to make consumers worse off. Those source of concerns that a netflix for a hypothetical example or any firm in the broadband space with market power would discriminate in such a way to harm consumers would set off a set of standard analyses, the ftc and other antitrust agencies and courts for that matter have analyzed these problems for decades upon decades in a variety of industries, and the formula excuse me the algorithm for analyzing these problems are now sort of well known. I will say with respect to the methodology rather than boring you with its details that it is focused upon asking the central question of whether the conduct at issue makes consumers better off, in this case, Internet Users, better off or worse off. Im going to interrupt you there because i want to direct one more question. I have one minute left and im going to direct it to commissioner mcdowell. Antitrust law has the ability to be available for improper use and conduct if and when it occurs. In your view, has there been a demonstration of widespread abuses by Internet Service providers or other Market Participants that justifies deploy, a before the fact regulatory approach to potential Improper Conduct on the internet . And a followup question is, can you explain why the fcc is unwilling to conduct a cost benefit analysis before regulating such an important component of our National Economy . Is it fearful of the potential results . No, im not aware of widespread market failure, and thats why for years i called for a bona fide Peer Reviewed market study to be put out for market comment. The fcc is 0 for 2 in the public courts. I cant speak to their motivations. The court has handed the fcc a very tiny legal needle, and its trying to put a big fat regulatory rope through that eye. I think theyll fail again in court unless theyre very, very careful. And, if anything, this is an issue for congress to look at if there was a market failure to begin with, which theres not. Thank you, mr. Chairman. Thank you, mr. Chairman. Well now recognize the Ranking Member of the subcommittee, mr. Johnson, for five minutes. Thank you, mr. Chairman. I would ask unanimous consent to include a letter from Consumers Union on the importance of the rules or importance of rules to protect Net Neutrality be placed in the record. Without objection, so ordered. And i would also, for clarification, just note that commissioner wright, youre testifying before us today only in your individual capacity and that your oral and written testimony do not necessarily reflect the views of the federal trade commission. Is that correct . That is correct. Thank you, sir. Now, professor owen, you stated that most consumers dont are confused about the definition of the term Net Neutrality. Would you give us your definition . I dont have my own definition. I can do my best to infer it. Let me ask, then, for professor wu to give us his definition of the term. Net neutrality is a principal which suggests that internet carriers should give consumers what they want when they want it and not stand in the way, not to block some sites and not to favor some sites over others. Its just a basic principal of nondiscrimination which we have in many public accommodations, inns, hotels, airlines and so forth, as applied to the basic transportation facilities of the internet. All right. Thank you. Commissioner wright, the u. S. Supreme courts recent decision in American Express versus italian colors upheld the right of companies to force arbitration of antitrust terms through adhesive clauses and hidden in contracts in companies terms of service online. Are you familiar with that decision . Im vaguely familiar with that decision. Well, in her descent, Justice Kagan clarified the issue. She said as a result of that decision, amexs contract will succeed in depriving italian colors of any effective opportunity to challenge monopolistic conduct allegedly in violation of the sherman act. It so requires. Dont be fooled, she said. Only the Supreme Court so required. The federal arbitration act was never meant to produce this outcome. In the hands of todays majority, arbitration threatens to become more nearly the opposite, a mechanism easily made to
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