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"Net Neutrality: Let's Look Before We Leap"

Remarks of Assistant Secretary of Commerce Nancy J. Victory
to the Progress and Freedom Foundation Conference

June 27, 2003

Thank you very much for the opportunity to speak with you all today. I would first like to wish all of the folks here at the Progress and Freedom Foundation a very Happy 10th Anniversary! It's hard to believe that it's already been ten years since the PFF's founding in 1993. In recognition of this auspicious milestone, I would like to present Ray Gifford with a small token to commemorate the occasion. For those of you who don't know - aluminum is the traditional tenth anniversary gift. Ray, I thought that you might like an aluminum sealed copy of FCC's February's Triennial Review public notice - that way, it will still be fresh if and when the full text is finally released!

Over the last decade, the PFF has challenged policymakers, industry and consumers with a wide variety of thought-provoking ideas and issues on technology and public policy. Today's topic -- Net Neutrality -- is yet another in this streak of provocative discussions. So I am pleased to be with you here today to delve into the concept of Net Neutrality to see if we can understand what that term means, what concerns its proponents are seeking to address, what others think of Net Neutrality, and lastly, what insights NTIA has to offer on this issue.

Net Neutrality - Defining Our Terms

In many languages, the same word or term can have multiple meanings that vary with the tone and the context. In Chinese, for example, "ma" can have six different meanings: "mother," "horse," "flax," "trouble," "ant" - the insect, and "spicy." By putting "ma" at the end of a sentence, you can turn the sentence into a question. Obviously, the uninitiated can quickly become the center of unwanted attention in China by referring to some one's mother as a "horse" or "trouble" or, perhaps even, "spicy!"

So, to avoid confusion in today's discussions, we ought to start with some base line definitions of "net" and "neutrality." If we don't do so now, we are likely to find out later in the day that these terms have different meanings for different speakers. Indeed, given the intensity of the views on today's topic we are sure to have speakers using different tones and assuming different contexts for what "Net Neutrality" means.

The "Net" in Net Neutrality obviously refers to the Internet. Of course, this "Net" is not really one network, but a network of networks. Most stakeholders in the Net Neutrality debate are really talking about the broadband Internet, with all of its potential to bring rich services and content to consumers and businesses. It's precisely those broadband services and content -- and the economic opportunities they represent -- that have sparked the debate over Net Neutrality.

Indeed, we increasingly see consumers embracing broadband as their means to navigate the Internet. A May 2003 Nielson/Net Ratings survey found that the number of home-based broadband users jumped 49 percent over the past year. Currently, 39 million people, or 13 percent of Americans, access the Internet via broadband. President Bush has recognized the importance of broadband services and the increased "economic vitality" that can result from widespread broadband deployment. Consequently, he has emphasized that our nation "must be aggressive about the expansion of broadband." The Administration has taken significant steps to promote and sustain broadband deployment on many fronts, such as extending the Internet tax moratorium, leveraging $52 billion in federal IT procurement to stimulate demand and make government run more efficiently, and making broadband demand a top priority of the President's Council of Advisors on Science and Technology.

While the broadband "Net" in Net Neutrality is pretty well understood, "Neutrality," like the Chinese term "ma," can have different meanings to different speakers or listeners. "Neutrality," according to Black's Legal Dictionary, is "the state of a nation that takes no part between two or more nations at war." According to Black's dictionary, "the principal hostile powers are called the 'belligerents;' those actively co-operating with and assisting them, their 'allies;' and those taking no part whatever, 'neutrals.'"

In the context of Internet policies, however, "Net Neutrality" is used in ways dramatically different from its plain meaning of "taking no part whatever." The industry sectors and policy perspectives you are going to hear today will inevitably see "neutrality" through different prisms reflecting where they stand and what they face in the business world. Let me give you a few examples of what to expect.

For some of today's speakers, "neutrality" stands for the freedom to experience the Internet without limitation, to go where you want to go, how you want to go, by means that you select. In the view of these proponents, Net Neutrality means "unimpeded consumer access to all Internet-based information, products, and services." Stated another way, they see neutrality as standing for the proposition that subscribers should not be blocked or redirected from visiting websites by a competing company. It means enabling subscribers to utilize fully the download and upload capacities of their network subscription without unreasonable limitations. It also means users have the freedom to choose which web portals they use, and what online stores they visit; what they want to see and what they do not want to see. In short, Net Neutrality is the ability to experience the Internet as we see fit.

Others see Net Neutrality in terms of regulatory parity - regulating or not regulating different types of market participants in comparable ways. In other words, the burdens, freedoms and benefits accorded by government to one type of player are similar to those extended to all other types of players. Under the banner of "regulatory parity," many legal, policy and political battles are being waged today.

Still other speakers today are likely to see Net Neutrality in terms rights to access and use the Internet highways. Open Access -- or as some called it, Forced Access -- is one of the most hotly contested issues in telecom. Should cable companies be required to open their networks to allow unaffiliated ISPs to offer service to cable customers? Should telephone companies be required to open their networks and network elements to uses by others? Is it necessary for the government to become an ally or belligerent in the fray in order to ensure neutrality in the marketplace.

The latest Net Neutrality issue is what I'll call "Carterfone for Broadband." I'm sure you're all familiar with the FCC's 1968 Carterfone decision, which allowed consumers the freedom to attach non-AT&T equipment of their own choosing to AT&T's then-monopoly network, so long as they didn't harm the network. Some parties are raising this same issue in the broadband context, such as with the attachment of WiFi nodes to residential cable modem or DSL connections.

Concerns Raised by Net Neutrality Proponents

Some interested parties have expressed the concern that the combination of broadband transmission and Internet access may enable firms that both control broadband facilities and offer Internet access to discriminate against other Internet service providers and unaffiliated information sources, or to restrict subscribers' use of broadband transmission facilities in order to protect revenue streams and profits. Some Net Neutrality proponents claim that experience shows that firms providing transmission facilities have some incentive, particularly where competition is imperfect, to use their control of such facilities to gain an undue advantage over competitors in vertical markets, in this case, Internet access and Internet based information.

In their filings with the FCC, the Digital Media Association (DMA), the High Tech Broadband Coalition, and some other parties have cited a few anecdotal examples of preferential linkages and other discriminatory actions. DMA, for example, reported that @Home, a now-defunct cable Internet service, directed all users initially to @Home's home page and precluded the ability to reset to another home page using a portal of the users' own preference.

Some parties have also raised the type of hypothetical scenario where "David's Pizza" pays a vertically-integrated broadband Internet service provider to restrict access to the website for "Joe's Pizza." In that case, the user might not be able to access "Joe's" website, or might find a pop-up ad for "David's" when landing on "Joe's" site.

Some -- though certainly not all -- proponents of Net Neutrality argue that the government should mandate Net Neutrality. Amazon.com, for example, "believes the [FCC] should consider regulations that directly bar broadband ISP behaviors that discriminatorily impede consumer access to Internet-based information, products, and services." Absent an Open Access requirement, Amazon.com thinks these rules are "absolutely necessary."

Net Neutrality: A View From the Other Side

On the other side of the debate, parties like the National Cable and Telecommunications Association, or NCTA, argue that the general concept of Net Neutrality is already built into the way most network providers and ISPs are doing business. Thus, government mandates are unnecessary and potentially even harmful. NCTA claims that, without solid evidence of a market failure, the government should resist the temptation to regulate an industry that is struggling to find the right business arrangements to attract customers.

Other opponents of government mandates point out that firms providing broadband Internet access have sound business reasons to ensure that their customers retain these freedoms in a broadband world. Successful companies understand that the best way to build and maintain a strong customer base is to provide them with the most satisfactory product and product experience as possible. Restricting the ability of users to freely explore the Internet would likely alienate at least some of a company's customer base and send them searching for alternatives.

And alternatives are available. Many households can already choose among multiple broadband providers. Additional providers are emerging, using new wireless, satellite and even powerline technologies. The more choices consumers have, the less chance any one provider has to limit the quality of the service they market.

Finally, some assert that there may be a legitimate reason or business model for intentionally restricting or shaping a consumer's access to certain Internet content and activities in exchange for an explicit benefit to the user, such as low-cost broadband service, provided the consumer consents to the arrangement. For example, a provider of online content for children could conceivably market a reduced-fee broadband service to families with small children that are willing to view only that provider's content. Such a system could be particularly beneficial to lower-income areas and demographics that lag behind others in broadband connectivity. Regardless of whether such a service would be successful, opponents of government mandates want broadband providers to have the freedom to experiment with a variety of business models.

NTIA's Perspective

So what does NTIA think about calls for government-mandated Net Neutrality? Well, as an initial matter, we must remember that government action is usually not a precision-guided munition. It can impose significant costs on businesses and society, and it often has unintended consequences, some of which may not be known until well after the action is taken. This is particularly true if the government action is premature or heavy-handed. In such cases, the costs can easily outweigh the best of intentions. Because of this danger, the threshold for imposing new regulations should be fairly high.

That said, we at NTIA fully support the opportunity for an open and unfettered consumer experience on the broadband Internet. Indeed, these are some of the key characteristics that have made the Internet such an unprecedented success in a relatively short period of time. Preserving those opportunities has been and should continue to be a key goal.

Despite the importance of this goal, we would urge caution against attempts to impose regulations mandating some form of Net Neutrality without solid and substantial evidence of unfair or discriminatory conduct. So far, we simply have not seen that kind of evidence. We do think it's prudent, however, to keep a watchful eye on the market for discriminatory or unfair conduct and we would not want to completely foreclose the possibility of future regulation. But for now, we think marketplace flexibility and vibrant competition are the best prescription for attracting investment, promoting innovation, and stimulating the continued expansion of broadband content and services to American consumers and businesses.

I know the participants on today's panels have differing views on the need for government mandated Net Neutrality. The challenge is choosing wisely on the continuum ranging from the plain meaning of "neutrality" as "taking no role whatever" to intervention in order to prevent or remedy real harms. Dialogs like these are helpful in fleshing out the issues and gaining a better understanding about what's actually happening out there in the marketplace. I look forward to a spirited discussion.

I would like to thank all of you for joining me today and I again wish the PFF a happy 10th anniversary. I wish you the best of luck for another decade of success.

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