07-52 06-15-2007 google inc. 6519529458

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

1/47

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

In the Matter of ))Broadband Industry Practices ) WC Docket No. 07-52

))

COMMENTS OF GOOGLE INC.

Richard S. Whitt, Esq.Washington Telecom and

Media CounselGoogle Inc.

1001 Pennsylvania Avenue, NWSuite 600 SouthWashington, D.C. 20004202.742.6536

June 15, 2007

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

2/47

Comments of Google Inc.WC Docket No. 07-52

June 15, 2007

i

EXECUTIVE SUMMARY

The FCC should adopt a national broadband policy that seeks to further network neutrality as a

market environment. As part of that policy, the Commission should promptly initiate a

rulemaking proceeding to consider various proposals; these include:

incremental fixes (more and better broadband data, user transparency mandates) structural changes (various forms of network-based competition) a ban on most forms of packet discrimination an effective enforcement regime.

These policies represent modular, multimodal mechanisms for creating new user options and

disciplining the market behavior of the incumbent broadband providers.

Unfortunately incumbents operating in todays concentrated broadband market have the

incentives and ability to discriminate against third party applications and content providers.

Economic analysis and real-world experience also challenge the prevailing notion that more

competitive markets invariably lead to open markets.

Within the context of the network neutrality debate, the FCC should endeavor to clarify those

points of agreement between the parties. Most agree that prohibited practices include

blocking/impairing/degrading Internet traffic, and the unilateral imposition of terminating

charges on Web companies. Most also agree that permitted practices include reasonable network

management and differential, but not discriminatory, business practices. Packet prioritization

remains the key point of contention between the parties. Because this practice creates a host of

economic, technical, and policy problems, the Commission should at minimum prohibit its more

discriminatory forms.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

3/47


June 15, 2007

ii

TABLE OF CONTENTS

I. BACKGROUND AND OVERVIEW ...........................................................................1

II. THE COMMISSIONS CHIEF OBJECTIVE SHOULD BE TO CRAFT A

NATIONAL BROADBAND POLICY THAT EMBRACES THE END GOAL OF

NETWORK NEUTRALITY.........................................................................................2

A. Network Neutrality Constitutes An Optimal Market Environment...........................2

B. Whats Past At The FCC Is Prologue For The Internet .................................................5

C. Crafting A Tailored Approach To Regulation ................................................................8

III. BROADBAND PROVIDERS HAVE THE MARKET INCENTIVES AND THE

ABILITY TO DISCRIMINATE AGAINST CONTENT PROVIDERS...................10

A.The Consumer Broadband Market Is Highly Concentrated, With Extensive Barriers

to Entry, High Consumer Switching Costs, and No Near-Term Competition.............10

1. A Highly Concentrated Market ..............................................................................10

2. Barriers to Entry .....................................................................................................14

3. Switching Costs........................................................................................................15

4. No Near-Term Competition ...................................................................................15

B. Any Future Competition May Not Be Sufficient to Discourage Certain

Anticompetitive Behavior That Harms Consumers......................................................16

1. Vertically-Integrated Broadband Providers ..........................................................17

2. LEC Terminating Access Fees and Wireless Carrier Practices.............................19

IV. THE COMMISSION SHOULD CLARIFY THOSE AREAS OF GENERAL

AGREEMENT AMONG THE PARTIES..................................................................21

A. The Broadband Providers Already Agree That They Should Not Be Allowed To

Block, Impair, Or Degrade Internet Traffic .................................................................21

B.Broadband Providers Should Be Free To Engage In Reasonable Network

Management Practices and Adopt Myriad Business Models .......................................22

C.Broadband Providers Can Collect Fees From Their End User Customers, But Should

Not Impose Access Fees Unilaterally On Non-Customer Web Companies, Which

Already Pay Their Full Fair Share for Network Connectivity.....................................23

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

4/47


June 15, 2007

iii

V. MOST FORMS OF PACKET PRIORITIZATION ARE NOT JUSTIFIED BY

SOUND ECONOMIC, TECHNICAL, OR PUBLIC POLICY THINKING ............26

A.Packet Prioritization Creates A Host of Serious Problems Without Adding Real

Benefits ...........................................................................................................................26

1. Unwanted Gatekeepers ...........................................................................................27

2. Reduced Incentives to Invest...................................................................................27

3. A Zero-Sum Game...................................................................................................28

4. A Solution in Search of a Problem ..........................................................................28

5. A Promise Without Substance ................................................................................29

6. The Two-Tiered Internet.........................................................................................29

B.The Broadband Providers Get Enhanced Incentives To Invest In Facilities In ANeutral, Non-Prioritized Environment .........................................................................30

VI. THE COMMISSION SHOULD PROMPTLY INITIATE A RULEMAKING

PROCEEDING TO CONSIDER AND ADOPT CONCRETE PROPOSALS

DESIGNED TO PRESERVE A NETWORK NEUTRAL ENVIRONMENT ..........33

A.The Broadband Companies Should Provide Detailed Information About Their

Service Offerings, Network Practices, and User Pricing ..............................................34

B.The Commission Should Consider Various Structural Fixes.......................................35

C.The Skype Petition Should Play A Separate But Complementary Role in the Network

Neutrality Debate ...........................................................................................................36

VII. IN THE ABSENCE OF (OR PERHAPS IN SPITE OF) ROBUST COMPETITION,

THE COMMISSION SHOULD PROPOSE ADOPTING A PACKET

NONDISCRIMINATION SAFEGUARD ..................................................................37

A.The Commission Should Adopt a Tailored Packet Nondiscrimination Safeguard......38

B.The Commission Should Adopt An Effective Enforcement Regime ............................40

VIII. CONCLUSION ...........................................................................................................43

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

5/47


June 15, 2007

1

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

In the Matter of )

)Broadband Industry Practices ) WC Docket No. 07-52))

COMMENTS OF GOOGLE INC.

Google Inc. (Google), by its attorneys, and pursuant to the Federal Communications

Commission (FCC or Commission) Notice of Inquiry,1 files these comments in the above-

referenced proceeding. Google welcomes the Commissions decision to initiate this inquiry.

Armed with the relevant information produced here, the Commission should move promptly to

launch a formal rulemaking proceeding to consider and adopt concrete, market-oriented

proposals designed to preserve open on-ramps to the Internet for users and providers alike.

I. BACKGROUND AND OVERVIEW

Google is a leading provider of Web-enabled software applications, content, and services,

and is based in Mountain View, California. Our self-defined mission statement is

straightforward, if not daunting: to organize all of the worlds information and to make it

universally accessible and easy to use. In many ways, the organizing and usefulness components

of that far-reaching corporate goal are largely within the purview of the 13,000 men and women

who work for Google, along with hundreds of thousands of small business partners, vendors, and

of course our customers. The greater challenge is the central component: universal accessibility.

Like other Internet-based companies, Google relies on the communications infrastructure

1In the Matter of Broadband Industry Practices, Federal Communications Commission, WC Docket No. 07-52,FCC 07-31, released April 16, 2007 (Notice of Inquiry or NOI).

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

6/47


June 15, 2007

2

provided by underlying carriers in order to reach our ultimate end users. In particular, in the

United States, the telephone companies and cable companies control the only means of

broadband access by Googles U.S. customers.

The FCC should adopt a national broadband policy that seeks to further network

neutrality as a market environment. As part of that policy, the Commission should promptly

initiate a rulemaking proceeding to consider various incremental fixes, structural changes, a ban

on most forms of packet discrimination, and an effective enforcement regime.

II. THE COMMISSIONS CHIEF OBJECTIVE SHOULD BE TO CRAFT A

NATIONAL BROADBAND POLICY THAT EMBRACES THE END GOAL OFNETWORK NEUTRALITY

A. Network Neutrality Constitutes An Optimal Market Environment

From the beginning, the struggle to preserve an environment of network neutrality has

been miscast or misunderstood by many. Much of what has passed for dialogue between the

interested parties unfortunately has been fueled by excessive rhetoric, confusion, and occasional

misrepresentation. The verbal battles have obscured several areas of common interest, as well as

the precise outlines of disagreement. If nothing else, this proceeding should help clear away

some of the fog.

Moreover, it is clear that, in a very real sense, the two supposed warring factions need

each other. Both the Web companies and their users pay the infrastructure companies to gain

access to the Internet from their respective end points, while the infrastructure companies rely on

the Web companies to generate consumer and business demand for usage of applications and

content. Of course the consumer relies on both sectors to supply the connectivity and content

they desire. Unfortunately, mutual dependency can lead to mutual distrust, and sometimes open

hostilities.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

7/47


June 15, 2007

3

When advocates of network neutrality describe what they want to see in the broadband

marketplace, they generally speak from a common vision of the ultimate outcome: an open,

transparent, and neutral Internet environment, in which users decide where their packets go, and

the application intelligence resides largely at the edges of the network. Such an environment

would optimally extend across all communications platforms and providers. No mere whim or

historical accident, the model of neutral networks reflects the deliberate design decisions built

into the Internet by its creators. 2 As Vint Cerf, Googles Chief Internet Evangelist, has put it:

The Internets open, neutral architecture has provided an enormousengine for market innovation, economic growth, social discourse,

and the free flow of ideas. The remarkable success of the Internetcan be traced to a few simple network principles end-to-enddesign, layered architecture, and open standards -- which togethergive consumers choice and control over their online activities. 3

As Dr. Cerf has explained, the layered nature of the Internet describes its what, the end-

to-end design principle describes its where, and the Internet Protocol (IP) describes its how.

The overarching rationale, or the why, is the revolutionary intention not to have an uninvited

gatekeeper anywhere in the network, but instead to give ordinary end users ultimate control over

what to do, where to go, and whom to communicate with.4 For American entrepreneurs,

inventors, and creators, the neutrality of the Internet has ushered in an era of innovation without

permission, in which new applications from the revolutionary to the merely useful can be

deployed and embraced by millions of individual users worldwide without need of approval from

bureaucrats, gatekeepers, or incumbents central offices.

2See Prepared Statement of Vinton Cerf, Vice President and Chief Internet Evangelist, Google Inc., U.S. SenateCommittee on Commerce, Science, and Transportation, Hearing on Network Neutrality, February 7, 2007. See alsoPrepared Statement of Vinton Cerf, Vice President and Chief Internet Evangelist, Google Inc., U.S. SenateCommittee on the Judiciary, Hearing on Reconsidering Our Communications Laws, June 14, 2006; Comments ofIts Our Net Coalition, WC Docket No. 06-74, filed on October 24, 2006.3 Cerf Senate Commerce Testimony at 1.4Id. at 2-3.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

8/47


June 15, 2007

4

No one reasonably can dispute the vast array of benefits that have flowed from the

neutral marketplace enabled by the neutral network. The vibrant ecosystem of innovation that

lies at the heart of the Internet has fueled unimagined economic, social, and personal growth,

creating new wealth and opportunity for millions of Americans.5 That ecosystem based upon a

neutral, open network should be nourished and promoted.

Moreover, as will be seen, neutrality actually is an indispensable component to

accelerating broadband deployment. Broadband providers actually can make considerable

money from putting improvements into the network itself, rather than merely profiting from

traffic congestion. Further, countries that enjoy an open environment, such as the United

Kingdom and Japan, tend to provide more bandwidth at lower prices.

If an open Internet environment is the optimal outcome,6 the critical task is to determine

the appropriate legal, regulatory, and/or market mechanisms to achieve that result the means to

the ends. In Googles view, the issue comes down to whether and how broadband connectivity

providers should be subject to incentives that effectively steer those providers to adopt neutral-

network-friendly business practices. Some argue for ex ante regulation, or ex post remedies, or

5 In his recent testimony to Congress, FCC Chairman Kevin Martin noted the tremendous economic and socialbenefits of a broadband-enabled Internet. "Broadband technology is a key driver of economic growth and enablesalmost all of today's innovations. The ability to share increasing amounts of information, at greater and greaterspeeds, increases productivity, facilitates interstate commerce, and helps drive innovation. But perhaps mostimportant, broadband has the potential to affect almost every aspect of our lives. It is changing how wecommunicate with each other, how and where we work, how we educate our children, and how we entertainourselves." Written Statement, The Honorable Kevin J. Martin, Chairman, Federal Communications Commission

Before the Committee on Energy and Commerce, U.S. House of Representatives, March 14, 2007, Available at:http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-271486A1.pdf.6 In a sense it is true that the Internet today is not an absolutely neutral place, in that the various servers, routers,and content delivery networks that comprise it can and do distinguish routinely between various forms of traffic.The key differences are that these commercial arrangements are (a) fashioned in ways that respect the principle ofnon-discrimination due to source or destination of communication. and (b) struck in a robustly competitiveenvironment, with no single decision-maker able to impose its will on others. The current debate over networkneutrality is focused only on last-mile broadband connectivity, where the threat of unilateral gatekeeping isdramatically more significant and tangible.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

9/47


June 15, 2007

5

no government role at all. Whatever the path taken, our policymakers should view an open

Internet environment as the preferred outcome.

B. Whats Past At The FCC Is Prologue For The Internet

Of course, network neutrality is not some newfangled concept, crafted as a clever way for

customers or competitors to constrain the business activities of the broadband providers. For

nearly thirty years, the FCC has presided over a regulatory framework that resulted in a network-

neutral market environment. The antecedent to the current debate over network neutrality lies in

the narrowband world of dial-up online services, which began in the late 1970s. To a large

extent, where we are now, and where we are going, is based on where we have been.

Beginning in the 1970s, the FCCs Computer Inquiry safeguards governed consumer

access to the ILECs last-mile on-ramps to online services, forming a legal framework that

buttressed the Internets own open and neutral design principles.7 The Computer Inquiry rules

did several important things. First, the world was divided into basic communications services

(regulated as common carriage) and enhanced information services (left unregulated). Second,

Internet service providers (ISPs) gained the right to access basic services, on a nondiscriminatory

basis, using the ILECs commercial rates and terms. This end user right eventually became

known as ISP open access. Third, ISPs and others had the concomitant right to attach lawful

devices, such as computer modems, to the ILECs last-mile networks. The end result was a

modular regulatory framework, with targeted common carriage regulation of the lower

7 Robert Cannon, The Legacy of the Computer Inquiries, 55 FED COMM. L. J. 167 (2003) (Cannon ComputerInquiries Paper).

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

10/47


June 15, 2007

6

infrastructure layers, and an unregulation regime applicable to the upper applications and

content layers.8

In the Computer Inquiry era, our nations laws, regulations, and policies contained no

explicit network neutrality mandate. Instead, we had an open communications platform by

design (the Internet) that was married by regulation to open end points (the local telephone

network), which together led to a neutral Internet environment. While the Internet itself was

built on common no gatekeeper design principles, the on-ramps were protected by the

Computer Inquiry safeguards, especially ISP open access. With some 8,000 online ISPs

competing in the dial-up market, consumer choice became the ultimate bulwark against potential

discriminatory practices by the underlying telecommunications carriers. The resulting end-to-

end market environment spawned, among other tangible benefits, what Vint Cerf has dubbed

innovation without permission.9

Professor Jonathan Zittrain of the Oxford Internet Institute characterizes this remarkably

productive environment as being "generative," meaning that it has great capacity for leverage

across a range of tasks, adaptability to a range of different tasks, ease of mastery, and

accessibility."10 The important feature of generative systems, such as the Internet, is that users

can easily do numerous things with them, many of which may not have been envisioned by the

designers. If, for example, the Internet had been built solely as a platform for sending email, and

required retooling to do anything else, most applications and business models never would have

8 Today, as a supreme irony, the FCC has adopted a regulatory regime premised on what can only be described as acontra layers approach: regulate the competitive top layers (VoIP applications), and deregulate the concentratedbottom layers (broadband connectivity).9 Cerf Senate Commerce Testimony, at 4. Businesses typically also had unconstrained commercial access to theInternet via the use of ISPs and dedicated circuits supplied by the telephone companies.10 Jonathan L. Zittrain, The Generative Internet, 119 HARV. L. REV. 1974 (2006). Available at:http://www.harvardlawreview.org/issues/119/may06/zittrain.pdf.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

11/47


June 15, 2007

7

developed. For years, the generative Internet had a regulatory parallel the Computer Inquiry

safeguards that enabled it to flourish beyond all expectations.

Regulatory actions invariably have practical consequences. In September 2005, the FCC

culminated its half-decade of rolling back regulation of the ILECs by eliminating its Computer

Inquiry requirements.11 In response, few should be surprised that the network neutrality issue

arose in dramatic and impressive fashion as a true grassroots phenomenon. In letters, emails,

blogs, documentaries, videos, songs, and radio shows, ordinary Americans utilized every means

of modern communication (including the Internet itself) to convey their deep concern over the

loss of safeguards that previously had protected an open platform. This national debate over

network neutrality was a reasonable, and likely inevitable, reaction to the culmination of the

deregulatory policies pursued by the FCC over the last five years. Faced with the loss of

hundreds of CLECs and thousands of independent dial-up ISPs, the empty promises of

intermodal competition, and the growing chorus of threats from broadband executives, the

Internet community responded with a single request: restore network neutrality.

The challenge now before us is to preserve both the open Internet environment, and

reasonable broadband market practices, while reducing the pressing need for explicit network

neutrality safeguards. This Commission to date has decided that no regulatory rules are

necessary to address concerns about packet discrimination. Instead, the agency promises to

stand watch, and react only when provoked by bad acts.12 Of course, without knowing what

11In the Matters of Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CCDocket No. 02-33, FCC 05-150, released Sept. 23, 2005. In 2002, the FCC declined to subject the cable companiesto the Computer Inquiry rules, but at that point raised the possibility of imposing them in the future should the cablecompanies engage in discriminatory conduct.Internet Over Cable Declaratory Ruling Appropriate RegulatoryTreatment for Broadband Access to the Internet Over Cable Facilities, CS Docket No. 02-52, Declaratory Rulingand Notice Of Proposed Rulemaking, FCC 02-77, released March 15, 2002.12 I do not think requirements are necessary at this time without evidence of actual harm to consumers or internetusers. The Commission has, and will continue to, monitor the situation and will not hesitate to take action to protectconsumers when necessary." Statement of Chairman Kevin J. Martin,Re: Applications for Consent to the

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

12/47


June 15, 2007

8

kinds of market behavior would trigger the FCCs involvement or whether the FCC even

possesses the requisite legal authority to remedy the situation the rest of us are left with serious

misgivings that this approach will prove effective at preserving an open and generative Internet.

Among other downsides, broad principles without consistent, enforceable rules risk a

significant chilling effect on innovators who rely upon regulatory clarity to assure the existence

of Internet platforms without artificial barriers.

C. Crafting A Tailored Approach To Regulation

It should go without saying that Google is a confirmed believer in the free market.

Unlike some who publicly tout the virtues of open markets while endeavoring behind the scenes

to keep them closed, Google genuinely trusts that the marketplace will provide consumers, users,

and providers alike with maximum benefits. Indeed, Google would not exist today but for the

free market, and in particular an open and neutral Internet that allowed the introduction and

flourishing of innovation without permission. Where the market demonstrably has failed,

however, policymakers must determine, thoughtfully and carefully, how to set things aright.

Over the last eighteen months, proponents of network neutrality have sought an

enforceable prohibition on packet discrimination as the specific remedy necessary to counter a

highly concentrated broadband marketplace. While the need for such a remedy remains (as

explained in Section III below), we believe there is a compelling case for a parallel,

complementary policy to root out the proximate cause of the illness itself. Section VI provides a

potential set of such solutions, including concrete ways to expand the competitive broadband

Assignment and/or Transfer of Control of Licenses from Adelphia Communications Corporation, et al, MB DocketNo. 05-192, released July 13, 2006, at 1.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

13/47

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

14/47


June 15, 2007

10

III. BROADBAND PROVIDERS HAVE THE MARKET INCENTIVES AND THE

ABILITY TO DISCRIMINATE AGAINST CONTENT PROVIDERS

The Notice of Inquiry characterizes the broadband market as showing ever increasing

intermodal competition among broadband providers, and asks whether such competition can

prevent particular market failures or other specific problems from developing in the first

place.17 These two separate but related questions are at the heart of the network neutrality

debate.

In Googles view, the lack of robust competition along with considerable barriers to

entry and consumer switching costs enables and even invites discriminatory conduct. It is also

a fair question whether the further development of future competition, which in itself is not a

given, would prove sufficient to deter such conduct. Importantly, the problem to be solved is

inherent in the concentrated nature of the broadband market itself, rather than in a roster of actual

and potential bad acts. In other words, the flaw is structural, not behavioral.

A. The Consumer Broadband Market Is Highly Concentrated, With ExtensiveBarriers to Entry, High Consumer Switching Costs, and No Near-Term

Competition

1. A Highly Concentrated MarketThe broadband market suffers from a pronounced and intractable lack of competition,

offering consumers, at best, a choice between a telephone or cable company. No less an authority

than the Congressional Research Service (CRS) has described the current market as a

broadband duopoly, where telephone and cable companies face little real competition.18 While

emerging technologies may eventually enable viable competitors, such channels currently do not

compete in terms of speed, price, availability, or technological maturity.

17 NOI at 11.18 Access to Broadband Networks, CRS Report for Congress, RL33496, updated Aug. 31, 2006, at 17.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

15/47


June 15, 2007

11

Further complicating this absence of real competition is a disappointing lack of

information about key parameters of the broadband market. While Congress and the FCC have

acknowledged flaws in the agencys existing reporting mechanisms, all we can say now with

certainty is that there is an imperfect duopoly in the market. Unfortunately the Commissions

current broadband deployment data collection and reporting methodology inherently

overestimates high-speed Internet availability and competition. For example, the FCC considers

an entire five-digit zip code to have broadband even if only one resident or business is served

within that zip code.19 The Commission also defines high-speed service as requiring only 200

kbps in at least one direction, while many experts argue that this classification fails to set a high

enough bar for many common Internet services.20

It may be more useful initially to look to the tools of traditional antitrust analysis,

particularly the Herfindahl-Hirschman Index (HHI). The HHI is a commonly accepted measure

of market concentration, which is calculated by squaring the market share of each firm

competing in the market and then summing the resulting numbers.21 As the Commission itself

has noted, under the DOJ/FTC Guidelines, a market with a [HHI] ... that exceeds 1800 is

considered highly concentrated."22 In 2003, the FCC calculated the HHI for a variety of

19 "Broadband Deployment is Extensive Throughout the United States, but it is Difficult to Assess the Extent ofDeployment Gaps in Rural Areas," GAO Report 06-426, May 2006, http://www.gao/cgi-bin/getrpt?GAO-06-426When comparing more fine-grained data collected in the ConnectKentucky project to the Form 477 equivalent forKentucky, for example, GAO found that the FCC methodology over-counted by some 19 percent. Id.20

In the Matter of Development of Nationwide Broadband Data to Evaluate Reasonable and Timely Deployment ofAdvanced Services to All Americans, Improvement of Wireless Broadband Subscribership Data, and Development of

Data on Interconnected Voice over Internet Protocol (VoIP) Subscribership, WC Docket No. 07-38, Notice ofProposed Rulemaking, FCC 07-17, released April 16, 2007 (Broadband Data NPRM). See also Connect theNation Act, S.1190, 109th CONG. (2007); Broadband Census of America Act of 2007, 109th CONG. (2007);Broadband Data Improvement Act, S. 1492, 109 th CONG. (2007).21 The Herfindahl-Hirschman Index, Department of Justice. Available at:http://www.usdoj.gov/atr/public/testimony/hhi.htm.22Application of EchoStar Communications Corp. , Hearing Designation Order, 17 F.C.C.R. 20,559 (2002), at para.134.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

16/47


June 15, 2007

12

broadband market scenarios; those figures ranged from 5200-6000.23 Others have used these

numbers to conduct their own analysis and have determined that broadband Internet markets are

quite highly concentrated.24

Until its most recent report, the FCCs own skewed July 2006 figures still showed an

overwhelmingly concentrated broadband market, with telephone companies and cable companies

controlling access to 99.6 percent of all U.S. consumers.25 The share of alternative broadband

platforms also has been decreasing steadily over time, from a less-than-impressive 2.9 percent in

1999 to an anemic 0.4 percent today.26 The GAO further found that only about 28 percent of all

US households subscribed to broadband service in 2005, and noted that DSL and cable modem

service together constitute the only broadband technologies actually available to consumers. 27

Further, each of the supposed technology alternatives such as Broadband over Powerline (BPL)

and Satellite Internet provide no real competitive option.28

23In the Matter of Amendment of Parts 1, 21, 73, 74 and 101 of the Commission's Rules to Facilitate the Provisionof Fixed and Mobile Broadband Access, Educational and Other Advanced Services in the 2150-2162 and 2500-2690

MHz Bands, WT Docket No. 03-66; RM-10586; WT Docket No. 03-67; MM Docket No. 97-217; WT Docket No.02-68; RM-9718, Notice of Proposed Rulemaking and Memorandum Opinion and Order, 18 FCC Rcd 6722 (2003).A residential market with one ILEC provider, one cable provider, and one other non-ILEC yields an HHI ofapproximately 5200. The HHI is between 5500 and 5800 if an additional non-ILEC is removed, assuming that thenational numbers of ILEC/RBOC and cable non-ILEC can be used to calculate market shares representative of atypical local broadband market. The HHI reaches 6000 if a typical business market consists of the incumbent serviceprovider and one other non-ILEC. Id.24

Bill D. Herman, Opening Bottlenecks: On Behalf of Mandated Network Neutrality, 59 FED. COMM. L. J. 1, 107-159, 2006.25 High-Speed Services for Internet Access: Status as of December 31, 2005, Federal Communications Commission,Industry Analysis and Technology Division, Wireline Competition Bureau (July 2006), at 9, Table 6. (July 2006Report).26 July 2006 Report; see also Broadband Reality Check II, S. Derek Turner, Research Director, Free Press (August2006), at 24-25.27 U.S. General Accounting Office, Broadband Deployment, GAO 06-426, May 2006, at 10-12.28See, e.g., Comments of Consumers Union, CFA, and Free Press, Broadband Data NPRM, filed on May 31, 2007,at 3-8.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

17/47


June 15, 2007

13

The Commissions most recent market share figures now include 3G Wireless service as

part of the nationwide totals for high speed services.29 3G Wireless fails to offer a true

competitive alternative because, among other drawbacks:

(1) the newest generation cards enable speeds that can only reach the low end of whatqualifies as high speed under the FCCs current definitions;30

(2) the price of these data plans is often more than double what consumers would pay forcable or DSL service, making them viable only for the higher-end business market;31

(3) wireless providers block many common Internet applications and services outright,32frequently do not allow network attachment of any device but their own,33 and reserve theright to terminate service arbitrarily for using other services that do not conform to ashort and vaguely-defined list;34

(4) very few consumers have substituted wireless broadband service for wirelinebroadband service; and

(5) the FCCs figures include all owners of a high speed-capable phone, regardless ofwhether they bought it with the intention to use that service, or even have a data plan thatsupports it.35

Perhaps most significantly, the largest national wireless high speed Internet providers

represent two incumbents from the wireline market and two longstanding telecommunications

29 High-Speed Services for Internet Access: Status as of June 30, 2006, Federal Communications Commission,Industry Analysis and Technology Division, Wireline Competition Bureau (January 2007).30Id. According to FCC data, only 19.75% of wireless end users can achieve 200 kbps in both directions. (Tables1, 2). More detailed information was withheld from the FCC's report (Table 5). Id.31Id. According to FCC data, 87.19% of mobile wireless connections are business subscriptions. (Tables 1, 3)Id.32 Tim Wu, Wireless Net Neutrality: Cellular Carterphone and Consumer Choice in Mobile Broadband, NewAmerica Foundation Wireless Future Program, Working Paper #17 (February 2007) (Wu Wireless NetNeutrality). Available at: http://www.newamerica.net/files/WorkingPaper17_WirelessNetNeutrality_Wu.pdf.33Id. at 7-8.34Id. at 13-14.35

The FCC states that "terrestrial wireless broadband providers should report the number of end users whose mobiledevices, such as wireless modem laptop cards, smartphones, or handsets, are capable of sending or receiving data atspeeds in excess of 200 kbps and whose billing addresses are within the areas of terrestrial mobile wirelessbroadband availability as reported in Part V." Local Telephone Competition and Broadband Reporting, Report andOrder, WC Docket No. 04-141, 19 FCC Rcd 22340 (2004) (instructions for Line A.I-8). In addition, theCommission finds that it is currently unable to determine from the reported data the number of subscribers whomake regular use of a broadband Internet access service as part of their mobile service package. Moreover, theCommission believes the current instructions make it likely that more and more mobile voice service subscriberswill be reported as mobile broadband subscribers merely by virtue of purchasing a broadband-capable handset,rather than a specific Internet plan. Broadband Data NPRM, at para 12.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

18/47


June 15, 2007

14

provider. The appropriate way to add up the available consumer options is not by simply

counting individual broadband technology platforms, but rather independent platforms.

Where the broadband incumbents do compete against each other in the market, they do so

primarily based on qualities such as price and speed. Within the larger context of market

dynamics, such competition, while beneficial to consumers, appropriately should be seen as

relatively shallow in nature. In contrast, a deeper form of competition would occur if

competitors adopted different business models and service packages. In the wireless space, for

example, Skype has found that While competition among wireless carriers may be sufficient to

act as a check on the pricing of services, the four large national wireless carriers have the same

incentive to avoid commoditizing their voice service; and thus the same need to control

subscribers handsets and the applications and software that run on them.36 While the wireless

market is rather different from the wireline broadband market, the analogy appears to be apt.

2. Barriers to EntryIn addition to excessive market concentration, considerable and insurmountable barriers

to entry also limit the possibility of new competition. To build and operate a nationwide

broadband system capable of competing head-on with the incumbents, would-be market entrants

must (among other things) pour tens of billions of dollars into constructing local, regional, and

national communications infrastructure, pay for backhaul, access rights of way (ROW),

interconnect with hundreds of other US carriers, and create a retail offering. For decades, many

economists believed that the communications market constituted a natural monopoly. While that

thinking may no longer be applicable, these significant barriers to entry suggest that the market

should be seen as one featuring highly unnatural competition.

36 Skype Petition to Confirm A Consumers Right to Use Internet Communications Software and Attach Devices ToWireless Networks, RM-11361, filed Feb. 20, 2007, at 24 (Skype Petition).

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

19/47


June 15, 2007

15

3. Switching CostsEven assuming the ability to choose another broadband provider in a particular area,

consumers endure a lengthy list of switching costs. Providers typically bind their customers with

multi-year contracts, bolstered by substantial early termination penalties. The prevalence of

bundling together different services also helps providers reduce churn (i.e., the use of

competitive offerings). Equipment costs, truck rolls, and even legacy email accounts also create

disincentives for consumers to move to another service provider.

4. No Near-Term Competition

Further, it is worth pointing out that broadband cannot reasonably be viewed as just

another service offering in a consumers marketplace. Broadband increasingly is becoming a

critical communications input, and consumers eventually will experience it as the dialtone of the

21st century. Whether or not broadband is viewed correctly as an essential facility in the

classic antitrust sense, as POTS and narrowband data services continue to fade away, consumers

uniformly will view broadband as essential to their daily lives.

* * * * * * * * * * *

Together, these salient factors excessive market concentration, no viable competitors,

considerable consumer switching costs, and substantial barriers to entry should lead any

rational policymaker to conclude that there is a major competition problem in the broadband

market. Thus, the suggestion in the NOI that intermodal competition is ever increasing, and

capable of preventing market failures, simply is not an accurate representation of reality. More

troubling, though, is the real possibility that even the arrival of additional competition may not

be sufficient to rein in the potential for discriminatory practices.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

20/47


June 15, 2007

16

B. Any Future Competition May Not Be Sufficient to Discourage Certain

Anticompetitive Behavior That Harms Consumers

Proponents and opponents alike of network neutrality appear to agree on one fundamental

point: the presence of sufficient competition should discipline the market behavior of the

incumbents, and make regulatory safeguards unnecessary. Of course, the two sides disagree

over the state of broadband competition today, and its prevalence tomorrow, so the argument

usually does not advance beyond that point. However, there are troubling signs that the addition

of several other broadband competitors may not be sufficient to constrain anticompetitive or

discriminatory practices in a vertically-integrated market.

Assuming projected or even optimistic levels of competition in the market for high-speed

broadband, there is now reason to believe that such competition alone will not adequately protect

consumers. According to some economic experts, competition may even increase the likelihood

that existing broadband providers will exercise market power to exclude or discriminate against

competitors in the complementary market of Internet services.37 A single monopolist may

refrain from such tactics due to the so-called one monopoly rent rule. On the other hand, a

highly competitive marketplace with dozens of competitors may well discourage such behavior,

as with the initial online dial-up ISP market (bolstered by common carriage rules).

Unfortunately, neither scenario applies in the context of todays broadband market. Recent

examples in the related terminating LEC and wireless markets also demonstrate that the presence

of multiple competitors often is insufficient to discourage exclusion, discrimination, and other

anticompetitive behavior.

37 Barbara van Schewick. Towards an Economic Framework for Network Neutrality Regulation,J. TELECOMM. ANDHIGH TECH L 5 (2007). Available at SSRN: http://ssrn.com/abstract=812991

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

21/47


June 15, 2007

17

1. Vertically-Integrated Broadband Providers

Economic theory demonstrates that broadband connectivity providers retain the ability

and incentive to discriminate even in a relatively competitive market. In the Internet context, the

ability of network providers to exclude competitors from a complementary market does not

depend on a monopoly position in the primary market, but instead is enabled by network

management technologies.

According to noted scholar Barbara van Schewick of Stanford University,38 a variety of

exceptions to the one monopoly rent rule apply in the high speed Internet market. These

exceptions include the ability to generate more outside revenue, and the desire to preserve

competitive position in the primary market.39 In the first exception, the broadband provider

seeks to exclude or discourage access to complementary products in an effort to capture higher

profits by selling directly to its consumers. In the second exception, the broadband provider

seeks to preserve a competitive position in the primary market by differentiating itself through

exclusive content and applications, and by degrading or blocking competitive services that

reduce the differentiation of the providers applications. The costs of exclusion actually are

considerably diminished when the provider competes with at least one other network provider.

Specifically, exclusionary conduct can serve to strengthen market power by driving

competitors from the adjacent market (witness current battles over VoIP and other applications).

It can also increase switching costs by making it difficult to migrate data and hardware from one

platform to another. Most importantly, discriminatory practices rather than direct blocking can

give the customer a falsely negative perception of the quality of a rivals offering.40 As the high-

speed ISP market moves from monopoly to competition, the one monopoly rent rule becomes

38Id.39Id. at 31-3240Id. at 34.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

22/47


June 15, 2007

18

less relevant, and the exceptions become more applicable. While competition brings significant

benefits, the presence of these exceptions makes it unlikely that harmful exclusionary practices

will be successfully discouraged. In particular, the ability and incentive to exclude rivals through

outright blocking or discrimination could have a significant impact on application-level

innovation by Web companies, and could lead to an overall decrease in social welfare.

Application providers will have less confidence that they will be able to adequately reach

customers and efficiently access the market, while consumers will lose the network effects of an

open Internet.41

Joe Farrell and Phil Weiser explored a related concept in their so-called ICE paper.

42

Internalizing complementary efficiencies takes the one monopoly rent concept a step further,

emphasizing that the network provider typically benefits from an efficient complementary

market. In most concentrated markets, this would argue generally for laissez-faire vertical

policies. However, there are several important exceptions in which incumbents are likely to act

in anticompetitive or inefficient fashion, many of which clearly apply in the high-speed

broadband market:

Platform monopolists may practice price discrimination on both ends of this two-sidedmarket. For example, a cable provider may block VoIP calls made by consumers in orderto charge a premium on their own voice service, or a telco may wish to extract moreprofits from a particular applications/content provider at the expense of overall marketefficiency.

Incumbents may engage in exclusionary practices because their competitors in thesecondary market threaten the primary monopoly. Such threats are by their naturespeculative, meaning incumbents are likely to behave irrationally or inefficiently toexclude secondary market competitors.

41Id. at 46. From an antitrust perspective, it is also difficult to justify exclusionary practices simply because firmsclaim that they are necessary in order to obtain more profit to build out their networks. Id.42 Joseph Farrell & Philip J. Weiser,Modularity, Vertical Integration, and Open Access Policies: Towards AConvergence of Antitrust And Regulation In The Internet Age, 17 HARVARD J. L. & TECH. 1, Fall 2003.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

23/47


June 15, 2007

19

Bargaining problems can discourage innovation if the platform provider threatens towithhold access to the platform unless the application inventor licenses its newapplication very cheaply.43 In the broadband context, platform providers not only avoidpaying any such license fee altogether, but also have the ability and incentive toleverage innovation-stifling fees on a discriminatory basis.

Incumbents simply may not understand the financial benefits of ICE and behaveirrationally for a variety of other reasons. Weiser and Farrell note that the less we cancount on a monopolist to be efficient even on its own terms, the more we should valueplatform-level competition, perhaps especially diverse competition.44 Endorsing suchdiverse forms of platform competition echoes our own suggestion of favoring deep(business model) competition over more shallow (price and speed) competition.

Thus, sound economic theory predicts that vertically-integrated broadband companies,

whether in a concentrated or a more competitive space, face market signals that may not lead

them to embrace open on-ramps to the Internet. As we will discuss briefly below, there are

several troubling real-world examples that bolster that view.

2. LEC Terminating Access Fees and Wireless Carrier Practices

In addition to van Schewicks work related to vertically-integrated broadband providers,

and the Farrell/Weiser work on internalizing complementary efficiencies, there are actual

industry examples illustrating the apparent insufficiency of competition to discourage

anticompetitive practices. Two of these relate to LEC access charges and wireless carrier

practices.

By 2001, many CLECs began to charge inflated terminating access charges to connect

their customers calls to non-customers. This problem arose because the intercarrier

compensation regime is a two-sided market that provides incentives for LECs to charge for

terminating access service in excess of what a competitive market ordinarily would indicate. In

this case, as one author puts it, A CLEC can act as a monopolist because it controls an essential

component of the telephone network that provides long distance calls. Once a customer has

43Id. at 113.44Id. at 116.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

24/47


June 15, 2007

20

chosen a LEC, calls to or from that customer cannot be completed without that LECs

involvement.45 The consumers choice of a LEC in this case was not affected by terminating

access fees because such fees were charged to the calling party. Because of this, each individual

consumer was motivated to choose the cheapest LEC, which may have kept prices low via

inflated access termination charges, in turn driving up the prices of all of those who called them.

The problem worsened until the FCC eventually compelled the CLECs to price at

published rates. At that juncture the Commission was forced to now acknowledge that the

market for access services does not appear to be structured in a manner that allows competition

to discipline rates.

46

A variation on this terminating LEC access bottleneck situation is playing

out now in Iowa. 47

In addition, the wireless sector provides an example of a relatively competitive market

coexisting with exclusionary tactics. As scholar Timothy Wu has catalogued, wireless carriers

routinely block access to a range of applications, services, and content, and attempt to lock

handheld devices to the carriers wireless networks.48 These practices are prevalent despite the

fact that the wireless market is characterized by four national facilities-based providers, a host of

smaller facilities-based providers, and numerous resellers. The discrepancy between the

relatively large number of players in the wireless market, and the restricted business models

actively condoned and practiced there, casts additional doubt on the prevailing notion that

45 Noel D. Uri,Monopoly Power and The Problem of CLEC Access Charges, 25 TELECOMMUNICATIONS POLICY 8(2001).46Access Charge Reform , Seventh Report and Order and Further Notice of Proposed Rulemaking, 16 FCC Rcd 9923

(2001). Available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-01-146A1.pdf.47 In December 2006, AT&T/AT&T Wireless decided to stop paying termination access fees to Great LakesCommunications Corporation (GLLC), an Iowa company, because the company allowed access to conferencecalling services which pulled customers away from AT&T. The FCC ordered large telcos to stop blocking calls intonumbers such as Free Conference Call, and threatened punitive actions if the carriers didnt comply. The FCCexplicitly stated that carriers were violating rules which prohibit blocking consumers access. Several days laterafter reports of continued abuse, the FCC clarified that service degradation also would not be tolerated. PaulKapustka, FCC Chairman Martin to Telcos: No Blocking Iowa Calls, GigaOm, May 3, 2007. Available at:http://gigaom.com/2007/05/03/fcc-commish-martin-to-telcos-no-blocking-iowa-calls/.48 Wu Wireless Net Neutrality Paper, at 5-14.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

25/47


June 15, 2007

21

incrementally greater degrees of competition is all that is necessary to eliminate discriminatory

practices adversely affecting the open Internet environment.

IV. THE COMMISSION SHOULD CLARIFY THOSE AREAS OF GENERAL

AGREEMENT AMONG THE PARTIES

At this particular moment in the network neutrality debates, it behooves all market

players to clear aside the rhetoric and confusion. The Commission should take this opportunity

to drill down and uncover the areas of agreement between the parties, and those relatively few

but important areas of disagreement.

Initially, it would be useful for opponents of network neutrality to at least acknowledge

the legitimate concerns of Web companies about market concentration issues. Without budging

on that point, productive dialogue effectively ceases. It may be an intellectually defensible (if

unsupported) position to say that policymakers need not craft regulatory safeguards in response

to a concentrated market; it does little good not even to admit the concentration exists in the first

place.

It also would be helpful if our opponents were to agree that it would be desirable to

preserve the Internet as an open platform for edge-powered innovation without permission.

When some dismiss that objective as nave, or even wrong-headed, productive discussions again

come to an end.

A. The Broadband Providers Already Agree That They Should Not Be Allowed To

Block, Impair, Or Degrade Internet Traffic

In numerous public statements, the incumbent broadband providers have agreed with

network neutrality proponents that there are certain market practices that are discriminatory and

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

26/47


June 15, 2007

22

should not be tolerated. These practices include blocking, impairing, and/or degrading Internet

traffic.49 These public concessions are important and should not be ignored or downplayed.

Of course, the disagreement with regard to blocking and impairment activities is not that

they should not occur, but whether enforceable federal regulations are necessary to police these

public pledges. Google continues to believe that actual rules with actual remedies will have a far

greater deterrent effect on the broadband providers than unenforceable proclamations.

B. Broadband Providers Should Be Free To Engage In Reasonable Network

Management Practices and Adopt Myriad Business Models

Google does not dispute that the broadband providers should have the ability to manage

their networks, as well as engage in a broad array of business practices. The real question comes

down to what kinds of business models and network management techniques rely on unilateral

control over last-mile broadband facilities, as opposed to other physical layer facilities (middle

mile and Internet backbone infrastructure) and applications and content layer activities.

Most known network management techniques will create few if any competitive and

discrimination issues. So, for example, it is entirely reasonable for a broadband provider to

utilize legitimate application and content-neutral practices such as halting harmful denial of

service (DOS) attacks, or prioritizing all packets of a certain application type, such as streaming

video. Blocking some traffic based on IP address source because of the prevalence of objective

network harms, such as viruses or worms, also is a reasonable practice. If, on the other hand,

network management is used to promulgate discriminatory practices such as blocking,

49 Reardon, AT&T Chief Clarifies Net Neutrality. See also Testimony of David L. Cohen, Executive VicePresident, Comcast Corporation, Hearing before the Committee on the Judiciary, U.S. Senate, June 14, 2006.Reconsidering Our Communications Laws: Ensuring Competition and Innovation. Cohen states that we havenever blocked our customers access to lawful content and we repeatedly have commited that we will not block ourcustomers ability to access any lawful content, application, or service available over the Internet. Id. at 10.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

27/47


June 15, 2007

23

degrading, or prioritizing certain applications or content, based on an intention to impair the

offerings of competitors such practices should be prohibited as unreasonable.

Nothing in the concept of network neutrality would prevent the broadband providers from

managing the security and bandwidth-usage aspects of their own applications and content. Tim

Wu refers to this as the police what you own concept.50

There is also broad agreement that broadband carriers should be free to deploy network

management upgrades, such as the use of local caching or private network backbone links.

Again, these practices are reasonable because they do not involve discriminatory conduct

stemming from the carriers control over last-mile facilities.

A wide array of business models also can and should be accommodated. For example,

the broadband providers should be free to provide managed IP services and proprietary content

(IPTV), which do not involve Internet-derived content. Moreover the broadband providers can

create and sell a full range of software applications, content, devices, and services. In each

instance, these business models do not depend on unilateral control over the on-ramps to the

Internet.

C. Broadband Providers Can Collect Fees From Their End User Customers,

But Should Not Impose Access Fees Unilaterally On Non-Customer Web

Companies, Which Already Pay Their Full Fair Share for Network

Connectivity

SBC CEO Ed Whitacre, Business Week (Nov. 7, 2005): "Now what they [Google, Yahoo, MSN]would like to do is use my pipes free, but I ain't going to let them do that because we have spent

this capital and we have to have a return on it. So there's going to have to be some mechanism

for these people who use these pipes to pay for the portion they're using."

50 Tim Wu,Network Neutrality, Broadband Discrimination, 2 J. ON TELECOMM. & HIGH TECH. L. 141, 167-71.2003.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

28/47


June 15, 2007

24

Verizons Senior Vice President and Deputy General John Thorne, Washington Post (February 8,2006): [Google] is enjoying a free lunch that should, by any rational account, be the lunch ofthe facilities providers.

The Bell Companies have expressed an intention to levy surcharges on companies that

are not their own retail customers. These surcharges would be above and beyond the billions of

dollars that Google and other Web companies already spend for network access and

infrastructure to provide their content and applications to the Internet. Such surcharges would

constitute discriminatory leveraging of market power and control of underlying transmission

facilities, which would have been expressly prohibited under the FCCs now-expired

nondiscrimination safeguards.

51

Broadband providers are permitted to collect charges from the end user for providing

broadband transmission and Internet access service that allow the consumer to connect to the

Internet. These charges can vary with the amount of bandwidth speed or capacity. These

charges do not violate nondiscrimination principles because the end user can choose whether or

not to purchase that capacity, and the broadband provider is not leveraging its control over last-

mile facilities to dictate which content or applications receive special treatment.

Under the Internets longstanding charging arrangements, each party pays for its own

connection to the Internet, and then is free to utilize that connection in whatever ways are

desired. Google believes that consumers should be able to acquire higher speed or performance

capacity from the broadband providers, and then use this capability to reach any service they

wish on the Internet. In particular, consumers should be able to purchase tiered pricing

arrangements, based on the use of bandwidth, latency requirements, or other objective measures.

Such arrangements would constitute an appropriate, cost-based practice that compensates the

broadband provider for the additional capabilities provided.

51 Cannon, Legacy of Computer Inquiries, at 22.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

29/47

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

30/47


June 15, 2007

26

V. MOST FORMS OF PACKET PRIORITIZATION ARE NOT JUSTIFIED BY

SOUND ECONOMIC, TECHNICAL, OR PUBLIC POLICY THINKING

A. Packet Prioritization Creates A Host of Serious Problems Without Adding

Real Benefits

Putting aside the question of blocking, impairing, or degrading Internet traffic, the sole

remaining issue is traffic prioritization. In Googles view, there are two distinct methods of

prioritizing data packets using QoS or other measures: reasonable differentiation and

unreasonable discrimination.

Some forms of packet prioritization constitute reasonable business practices, because

they utilize objective criteria, and/or do not merely leverage unilateral control over last-mile

connectivity. These practices include differentiating based on the type of applications and/or the

quantity of bandwidth purchased by the consumer. Other forms amount to unreasonable

discrimination; these include differentiation based on the ownership or affiliation of the content

(who), or the source or destination of the content (the where). The difference between the two is

straightforward in concept, but determining which is actually occurring in the network is a far

different matter. Together with the public declarations of broadband executives, the lack of real-

time information about network activity feeds a lack of trust that the broadband provider will

employ packet prioritization over last-mile networks in a manner that still preserves an open

Internet environment and does not facilitate the introduction of anticompetitive practices.

There are important economic, technical, and public policy reasons why the FCC should

be concerned about allowing the broadband providers to prioritize various forms of Internet

traffic traversing their broadband networks. These concerns become more manifest when the

prioritization is in service of discriminatory aims.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

31/47


June 15, 2007

27

1. Unwanted Gatekeepers

Traffic prioritization allows the broadband provider to become an unwanted gatekeeper

in the middle of the Internet. Because of the market power they currently employ, broadband

providers have the technical ability and economic incentives to determine which packets of

Internet traffic get delivered to which consumers under what conditions. The end result is that

the Internet becomes shaped in ways that serve the interests of the broadband providers, and not

consumers or innovative Web entrepreneurs. As Craig Newmark of Craiglist puts it, Imagine

if you tried to order a pizza and the phone company said AT&T's preferred pizza vendor is

Domino's. Press one to connect to Domino's now. If you would still like to order from your

neighborhood pizzeria, please hold for three minutes while Domino's guaranteed orders are

placed.53

2. Reduced Incentives to Invest

QoS robs broadband providers of their incentives to build out greater broadband capacity.

QoS originally was conceived as a software-based technical response to limited capacity. Once

QoS becomes a profit center for the broadband provider, however, that provider no longer has an

incentive to remove the bottlenecks that generate QoS revenues. Instead, the provider has every

incentive to maintain capacity constraints in order to justify the QoS fees to customers.

If the broadband providers are able to prioritize packets flowing over their network to the

benefit of themselves and their chosen few, they will come to rely on QoS as a revenue-

generating crutch that deters them from building bigger, faster broadband pipes that actually

serve everyone. Indeed, QoS quickly can become an unspoken rationale to maintain artificial

53Big Cable's Ridiculous Net Neutrality Smear Video, BoingBoing, Oct. 27, 2006. Available at:http://www.boingboing.net/2006/10/27/big_cables_ridiculou.html.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

32/47

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

33/47


June 15, 2007

29

usually even harder (due to the high cost of QoS-capable routers and clueful networkengineers).55

5. A Promise Without Substance

QoS may not even provide the supposed benefits that its supporters suggest. In order for

prioritization to have any material impact on a stream of Internet traffic, it must be activated all

the way through the Internet, from the content providers side of the Internet cloud through the

backbone networks and finally to the end user. Because any one network operator does not own

and control every potential route through the public Internet, numerous multi-party business

agreements and/or uniform standards would be required among all Internet service providers to

achieve end-to-end QoS. Such arrangements have eluded the parties to date. For example,

British Telecom apparently will not employ a QoS-based scheme in its network.56

6. The Two-Tiered Internet

Finally, broadband providers employing QoS have the incentives and the means to create

a closed private network that consigns Internet content and applications to a relatively slow,

bandwidth-starved portion of the broadband connection. Obviously it will be increasingly

difficult for providers of Internet-based applications such as video content to compete effectively

against the broadband providers in this kind of two-tiered broadband network. Creating a new

fast lane is effectively a method of discrimination, where todays fast lane becomes

tomorrows minimum bar.57

55Id.56 David Meyer,BT Says No to Traffic Shaping, ZDNet UK, April 12, 2007. Available at:http://news.zdnet.co.uk/communications/0,1000000085,39286687,00.htm?r=12.57 In recent comments to the Japanese Ministry of Information and Communications, Google suggested that one wayto combat this two-tiered Internet is to adopt a reserved user capacity requirement, whereby consumers areguaranteed the ability to use for Internet access a certain discrete portion of the total bandwidth capacity availablevia the broadband connection. Public Comments of Google Concerning Japans MIC Framework for CompetitionRules to Address Progress in the Move to IP, filed May 10, 2006.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

34/47


June 15, 2007

30

B. The Broadband Providers Get Enhanced Incentives To Invest In Facilities In

A Neutral, Non-Prioritized Environment

The broadband providers appear to have fallen for (or fashioned) a false link between

open on-ramps to the Internet and negative incentives to invest in broadband facilities.

Broadband providers are economic actors, following what they perceive to be the rational

business imperatives of the markets to the ultimate benefit of shareholders and customers. What

we need most is a change in mindset, a recognition that open markets can be hugely profitable

markets.

There are both academic and real-world illustrations of how an open Internet actually

creates enhanced incentives to invest in broadband facilities. For example, a recent econometric

study at the University of Florida found that the cable and telephone companies providing

broadband services are more likely to further develop their infrastructure, resulting in higher data

speeds, if they do not charge Web-based content companies for preferential treatment.58 As the

authors concluded, based on detailed economic analysis, the incentive for the broadband service

provider to expand under net neutrality is unambiguously higher than under the no net neutrality

regime.59 Obviously this outcome goes against the assertion of the broadband service

providers that under net neutrality, they have limited incentive to expand.60

The best current example of an incumbent provider that embraces open on-ramps to the

Internet is British Telecom (BT), which has embarked on a fundamental restructuring effort. Its

new wholesale arm, Openreach, was launched in early 2006 to provide local communications

infrastructure on an open and nondiscriminatory basis to third parties. Under the watchful eye of

58 Hsing Kenneth Cheng, Subhajyoti Bandyopadhyay, and Hong Guo, The Debate on Net Neutrality: A PolicyPerspective, University of Florida (2007). Available at:http://www.hearusnow.org/fileadmin/sitecontent/TheDebateonNetNeutrality.pdf.59Id.60Id. at 30.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

35/47


June 15, 2007

31

OFCOM, the British telecoms regulator, Openreach is designed to ensure that other

communications providers face the same operational conditions as do BTs own retail arms. The

key point is that BTs management has wholeheartedly accepted the wholesale/retail structural

split, and point to improved profits and better services that have resulted.61

Further, those same broadband providers arguing to policymakers that paid QoS from

Internet and technology companies will help finance broadband build-outs, have been telling a

very different story to Wall Street investors. There, the providers present well-documented

claims that fiber facilities actually pay for themselves, and that proprietary video services not

prioritization-based fees will be the primary revenue generator for fiber networks.

Verizon has made clear statements to the investor community that deploying fiber

actually pays for itself.62 Importantly, fiber deployment continues to reduce network costs and

generate significant, ongoing savings in operating expenses. Verizon and analysts anticipate that

FiOS will generate a positive operating income beginning in 2009, based on both growing

revenues from FiOS services and the declining operational costs, resulting from fiber network

efficiencies. Verizons total fiber investment is expected to be EBITDA-positive in 2008.63 The

costs to pass and connect homes have declined, and continue to decline, resulting in improved

61 Statement issued by the Director General of Telecommunications, Effective Competition Review: Mobile.

Released Sept. 26, 2001. Available at:http://www.ofcom.org.uk/static/archive/Oftel/publications/mobile/mmr0901.pdf.62 Verizons Ivan Seidenberg claims that as Verizon builds FiOS networks over a period of four to five years, thecompany expects first to see positive cash flow, then to reach EBITDA positive, and finally to reach net incomepositive. Arshad Mohammed, Ivan G. Seidenberg Interview Excerpts, Washington Post, Jan. 31, 2006. Availableat: http://www.washingtonpost.com/wp-dyn/content/article/2006/01/31/AR2006013101647_2.html.63 Earnings before interest, taxes, depreciation, and amortization.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

36/47


June 15, 2007

32

operational efficiency.64 Analysts have observed FiOS will serve as a positive revenue source,

where it finally has reached the point where it will pay for itself in three-year payback.65

Analysts also point to video service as the primary revenue generator in the broadband

world. Video at this point has got to be the top transformational agent in the telecom industry

worldwide. Maybe voice revenue still is growing at 5% a year, but it really doesn't matter

whether voice revenue is growing or declining. Video is where the real money is: new money

and lots of it."66 Ovum predicts that video on demand revenues will reach $12.7 billion

worldwide in 2011, making it one of the fastest-growing digital content services over the forecast

period. While "VoD is not a revenue generator at the moment," it is a "must have vision of the

future in terms of both cash flow and telcos' content business survival."67 AT&Ts latest Annual

Report suggests that the video market offers huge revenue potential.68

Thus, contrary to the received wisdom, prioritization creates disincentives to the

deployment of broadband infrastructure, and open platforms actually enhance incentives to

invest in such networks. As detailed in the next sections, the Commission should take concrete

steps to ensure the broadband providers face the proper market incentives.

64Verizon Provides New Financial Data and Operational Details on its Fiber Network as Deployment GainsMomentum; Company Sees Positive Economic Returns; Customer Demand Proves Strong for FiOS Internet and TV

Services, and Network Provides Platform for Innovation, PR Newswire, Sept. 27, 2006.65 Sam Greenholtz and Mark Lutkowitz, Verizons Clever Corrdiro Play, IT Business Edge, March, 21, 2006.Available at: http://www.itbusinessedge.com/item/?ci=13778. Fiber costs continue to decline, and now are at $845per household as of September 2006, which is already lower than the companys year end-target.66 Dan OShea, Watch and Learn, Telephony Online, May 7, 2007. Available at:http://telephonyonline.com/mag/telecom_watch_learn/.67Video on Demand will be a 'Must Have' for Telcos, May 16, 2007. Available at:http://www.ovum.com/go/content/c,377,70485.68 AT&T 2007 Annual Report. Available at:http://www.att.com/Investor/ATT_Annual/downloads/ATT_2006_Annual_Report.pdf.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

37/47


June 15, 2007

33

VI. THE COMMISSION SHOULD PROMPTLY INITIATE A RULEMAKING

PROCEEDING TO CONSIDER AND ADOPT CONCRETE PROPOSALS

DESIGNED TO PRESERVE A NETWORK NEUTRAL ENVIRONMENT

The Commission asks whether regulations would further its mandate to encourage the

deployment on a reasonable and timely basis of advanced telecommunications capability to all

Americans.69 Google would put the question somewhat differently, namely: can a series of pro-

competitive, pro-innovation broadband policies bring us a network neutral environment, where

traffic prioritization by necessity does not take discriminatory, anticompetitive paths?

Google strongly supports the adoption of a national broadband strategy. Such a strategy

should include some incremental fixes (more and better broadband data, and user transparency

mandates), structural changes (varying forms of network-based competition), and a ban on most

forms of packet discrimination. Importantly, these policies represent modular, multimodal

mechanisms for disciplining the market behavior of the incumbent broadband providers. Should

they prove successful, packet nondiscrimination safeguards eventually should become

superfluous. Here, competition is not merely an economic good in its own right, but is valued

for the numerous consumer welfare benefits that it bestows.

In the broadband space, we must test the thesis that competitive markets invariably lead

to open markets. Thus, following the completion of the comment cycle in this NOI proceeding,

the Commission should move immediately to institute a formal rulemaking proceeding to

consider these and other forward-looking proposals.

69 NOI at para. 11; see 47 U.S.C. 157 (2006).

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

38/47


June 15, 2007

34

A. The Broadband Companies Should Provide Detailed Information About

Their Service Offerings, Network Practices, and User Pricing

Google welcomes the Commissions long-overdue inquiry into the broadband providers

packet management practices and pricing policies.

70

In order for policymakers to be able to

properly assess the actual state of the broadband market, they must have the necessary granular

information, including whether, where, and how consumers are being served.

We are pleased that the Commission requests that broadband providers supply specific

examples of beneficial or harmful behavior, complete with supporting documentation.71

Much of that information obviously is in the exclusive possession of the broadband providers.

Given the difficulty faced by third parties in gathering and presenting information about

network-based practices of broadband companies, Google looks forward to a detailed explication

of the broadband providers packet management and pricing techniques.

By their very nature, discriminatory practices occurring within the broadband carriers

physical and logical networks often can be extremely difficult to detect and report to government

authorities. Outside of more overt actions, like blocking all access to a particular website or

application, other forms of traffic degradation may have significant negative impact, even as

victims are largely unaware of the resulting damage, or blame third parties instead. Thus, it may

well be that discriminatory behavior is taking place right now, but outside the scrutiny of the

marketplace and would-be regulators.

In order to facilitate the collection and dissemination of relevant and timely broadband

data, Google urges the Commission to require all broadband providers to begin submitting semi-

annual reports that provide accurate, timely, and comprehensive data about broadband

70 NOI at paras. 8-9.71Id. at paras. 1, 8.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

39/47


June 15, 2007

35

deployment and uptake. As part of this requirement, the Commission should also investigate the

promising user-mapping database suggested recently by ITIF.72

Further, consumers themselves must have access to relevant information in order to make

intelligent decisions about the limited choices available to them. As a result, the broadband

companies should be required to provide clear and conspicuous terms of service to all users,

including their own retail customers.73 This transparency requirement should cover all pertinent

terms of their service offerings, including rates, terms, and conditions of service. Providers also

should supply claims about features, including the speed, bandwidth, and availability of service,

in clear and conspicuous language. In particular, the broadband provider should state

unequivocally whether and how its network affects any particular applications or content,

including promoting, enhancing, or prioritizing network traffic. In addition, should a broadband

provider fail to comply with any aspects of their posted statements, they should be held liable

(perhaps to the Federal Trade Commission) for committing fraudulent commercial practices.

B. The Commission Should Consider Various Structural Fixes

While the Commissions primary focus should be on developing robust broadband

competition, an inordinate emphasis on intermodal competition alone is misplaced. As discussed

above, the prospects for additional market entry remain speculative and uncertain. Instead, the

Commission should adopt a more broad-based, fulsome multimodal approach, which seeks to

promote competitive forces at different layers of the network.

72 Comments of ITIF, Broadband Data NPRM, filed on May 25, 2007, at 5-9.73 One possible way to bring this about is to reinstate the FCCs original fourth policy principle that required thebroadband providers to offer clear and conspicuous terms. See Remarks of Chairman Michael K. Powell, FederalCommunications Commission, Silicon Flatirons Symposium, The Digital Broadband Migration: Toward ARegulatory Regime for the Internet Age, University Of Colorado School Of Law, Feb 8, 2004.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

40/47


June 15, 2007

36

The Commission has various tools at its disposal to accomplish this objective. At

minimum, the Commission should open rulemaking proceedings to consider adopting some or

all of the following options:

Interconnection all broadband providers should possess the right to interconnect witheach other on a reasonable and nondiscriminatory basis;

Standalone broadband access capability incumbent broadband providers should offercustomers standalone or naked broadband Internet access, separated from any voice orvideo applications;

Open access incumbent broadband providers should sell a commercial bitstreamaccess service to third parties, including ISPs, at commercial (but reasonablynondiscriminatory) rates;

Municipal networks municipalities should be allowed to determine whether or not toprovide broadband Internet access service to their citizens;

Spectrum-based platforms new players should be encouraged to enter the market viawireless platforms, using licensed spectrum (such as in the upcoming 700 MHz auction)and unlicensed platforms (such as in the TV white spaces proceeding); and

Targeted support the federal universal service fund (FUSF) should be reformed, andinclude a separate broadband support mechanism.

C. The Skype Petition Should Play A Separate But Complementary Role in the

Network Neutrality Debate

In February 2007, Skype Communications submitted a petition at the FCC seeking

confirmation that a consumer possesses the right to (1) use Internet communications software

and (2) attach devices to wireless networks.74 Skype, with evidentiary backing from a separate

white paper prepared by Professor Timothy Wu,75 provided substantial empirical evidence that

players in the U.S. wireless market actively limited consumer choice by blocking access to

third party applications and locking handsets to carrier networks.

74 Skype Petition at 1.75 Wu Wireless Net Neutrality at 5-14.

8/9/2019 07-52 06-15-2007 Google Inc. 6519529458

41/47


June 15, 2007

37

Google was a signatory to formal comments submitted by the VON Coalition.76 In

support of technologically neutral and consistent regulatory policies, VON asked the FCC to

affirm that the four principles from the Commissions Policy Statement including in particular

the right to attach non-harmful devices and the right to run applications of ones choice apply

to wireless networks.77 VON urged the FCC to carefully monitor the wireless market, and be

prepared to take appropriate regulatory action should market failure be found to exist.

While the concept of wireless network neutrality is something of a misnomer when

applied to the Skype petition, Google sees that filing as playing a highly relevant role in federal

broadband policy. By focusing on the modular interfaces between the handset and software

applications, and between the handset and the underlying network, Skypes petition presents an

intriguing way for the Commission to deal with market discrimination issues, without subjecting

the wireless carriers business plans to undue regulatory scrutiny. In other words, a structural fix

at the interface level can help resolve concerns about the carriers market behavior. Google

believes the Commission should include the modular approach suggested by Skype as part of a

larger package of structural solutions in a national broadband strategy.

VII. IN THE ABSENCE OF (OR PERHAPS IN SPITE OF) ROBUST COMPETITION,

THE COMMISSION SHOULD PROPOSE ADOPTING A PACKET

NONDISCRIMINATION SAFEGUARD

The Public Notice next asks whether the FCCs Policy Statement should be amended, to

include a so-called fifth principle of nondiscrimination. The Commission also seeks views on

possible enforcement options.78

76 Comments of VON Coalition, RM 11361, filed on April 30, 2007.77Id. at 7.78 NOI at para. 10.

8/9/2019 07-52 06-15-2007 Google Inc. 65195294

07-52 06-15-2007 google inc. 6519529458

Documents