Net Neutrality

1. Net Neutrality VIEW FROM BOTH SIDES JUNE 16, 2006 Taylor Hawes Microsoft Corporation

2. Overview • The concept of network neutrality generally means that all Internet sites must be treated equally • The debate over Net neutrality started over whether broadband providers could block certain Web sites, it has moved on to whether they should be permitted to create a "fast lane" that could be reserved for video or other specialized content. • At issue is a lengthy measure called the Communications Opportunity, Promotion, and Enhancement (COPE) Act, which a House committee approved in April. View is additional, net neutrality protections for consumers, and more extensive rules would discourage investment in wiring American homes with higher-speed connections. • The U.S. House of Representatives definitively rejected the concept of Net neutrality on Thursday by a 269-152 vote

3. What’s Net Neutrality Regulation? • I. Net neutrality is an important technology communication policy issue for investors, policymakers and consumers • For consumers and policymakers, it is about which policy approach is best to achieve a full access, competitive, and innovative Internet? For technologists, it’s a network design debate: should government mandate a neutral end-to-end network design, or should competition drive network design? • For techcom investors, it is about which business models will be free to innovate, differentiate, grow and capture value? • II. Comparing Net-Neutrality Definitions: Comparing definitions brings focus to the net neutrality debate. • Net neutrality is the effort by ecommerce companies to get Congress to pass a new law or get the FCC to impose new broadband regulations to require all Internet traffic be treated equally. Net neutrality came to the forefront as a result of deregulatory FCC rulings, which the Supreme Court upheld, that cable modems and DSL were competitive, unregulated “information-services.” That means broadband telecom and cable networks are not subject to regulation of price, terms or conditions. • The FCC defined: net neutrality as consumers not being denied access to the legal content, applications and devices of their choice, in a non-binding policy statement 8-5-05. • Ecommerce companies have defined: “Net neutrality as the principle that the Internet should remain open and interconnected – free from gatekeepers over new content and services.” (3-06 letter to the House Energy and Commerce Committee.) • Competitive broadband facilities define: net neutrality as unnecessary and destructive economic regulation that would: derail the evolution of a full access, competitive and innovative Internet for consumers; and reverse the Government’s fifteen-year policy to commercialize and not regulate the Internet.

4. What’s Net Neutrality Regulation? • III. Net Neutrality vs. Net Competition: Contrasting the two approaches also brings focus to the net neutrality debate. • Regulation vs. Competition. Net neutrality proponents believe that equal treatment regulation is needed to prevent Internet gatekeepers from potentially favoring selected content, applications or devices. At its core net neutrality is about dictating an end-to-end network design for broadband providers and prohibiting broadband networks from offering different customers different deals. In contrast, net competition proponents believe that vibrant competition is more than sufficient to ensure consumers are not blocked from access to the legal content, applications and devices of their choice. In the competitive broadband market, the overwhelming economic incentive is to satisfy consumers not antagonize them. • More Government-control of Internet vs. free market Internet. At its core, the net neutrality debate is also a philosophy system debate. Can government or free-market forces best pick: winners and losers; technologies that succeed; and/or what Americans want to buy? In other words, are decisions core to a free and open Internet best made by: political and regulatory processes; or contemporaneously by the many tens of millions of Americans that use the Internet and vote with their wallets everyday?

5. What’s Net Neutrality Regulation? • Net Design Rigidity vs. Flexibility. Net neutrality proponents believe that mandating networks operate neutral end-to-end network designs, will encourage maximum tech innovation at the edge of the network. What they call a “dumb” network merely connects devices and is neutral to the needs of applications or content running over the network. In contrast, net competition proponents believe that encouraging competition between many “smart” interoperable networks gives consumers the most choices and is also the best way to enhance the Internet’s security and privacy. Moreover, they question how a law that specifically limits innovation and differentiation by the over 2,000 broadband telecom, cable, and wireless companies in the U.S. -- to encourage innovation for companies at the edge of the network – is overall pro-innovation. • Price Regulation vs. Consumers Freedom to Choose. Common carrier telephone regulation long required equal price, terms, and conditions for interconnection. Net Neutrality proponents believe that broadband should operate in a similarly regulated way. They believe this would prevent networks from dictating how their networks are used or from favoring certain websites over others -- so that innovation at the edge of the network could flourish. Net competition proponents view the regulatory approach as outdated and overtaken by events -- competition. Applying monopoly regulations to a competitive market would have the nonsensical outcome of outlawing the development of choices for consumers through competitive innovation and differentiation of networks. The purpose of competition is creating choices for consumers and encouraging innovation; the purpose of regulation is sameness.

6. Microsoft Broadband Policy Goals • An Environment where Broadband is: • Broadly available on reasonable, competitive terms • Affordable for mainstream consumers • Open to consumer choice and provider innovation • Subject to ongoing investment/development by broadband providers • Opportunities for Consumers to: • Connect their choice of PCs and devices to the Internet • Access innovative Web services – e.g., Windows Live • Windows Live Messenger and communications services • Windows Live Search and information services • Enjoy IPTV services and online gaming with Xbox Live

7. Microsoft Broadband Policy Goals • Encourage Investment • We support targeted relief for incumbents where competition permits; • Encourage facilities-based competition for broadband services; • Give network operators flexibility to enter new lines of business easily; • Regulatory certainty is important to preserve investment incentives. • Preserve an “Open” Internet – “Net Neutrality” • Law and policy should embed certain basic principles: • Network operators may not block access to lawful services or applications or restrict consumer use of non-harmful devices; • Network operators should have incentives to invest in making enhancements to their Internet access services; • However, in making enhancements available, they should do so in a reasonable and fair fashion • E.g., Offer preferential service quality to Internet companies provided the consumer has the potential to buy an equivalent offer for use with services of his/her choice.

8. Standards and Interoperability • We recognize that interoperability is important to consumers • Microsoft is meeting its customers’ interoperability needs in numerous ways including: • building products that are designed to interoperate, • forging partnerships and collaborating with industry (including competitors), • licensing and cross-licensing IP, and • contributing to standards-setting bodies and industry consortia • Given both platform convergence and the expanding range of devices, only voluntary, market-led interoperability efforts are likely to achieve widespread adoption. Vendors should have the ability to choose how to best meet customer and market interop needs. • In the digital TV context, for example, mandated standards could both slow rollout of interactive TV and reduce consumer choice.

9. The Debate over Net Neutrality 6/07/2006 11:15:00 PM Posted by Andrew McLaughlin, Senior Policy CounselThe debate over "net neutrality" is coming to a boil in the next week as the House of Representatives is due to vote on a bill that could determine the future of the Internet. The big phone and cable TV companies want Congress’s permission to create a new, unprecedented regulatory bureaucracy on the Internet – a private bureaucracy of broadband monopolists with the power to determine what content gets to you first and fastest. Google believes that forcing people and companies to get permission from, and pay special fees to, the phone and cable companies to connect with one another online is fundamentally counter to the freedom and innovation that have defined the Internet.Our CEO Eric Schmidt believes this situation is so important that he has written an open letter to Google users asking them to speak out on this issue. We urge all of you to read his letter and call your representative in Congress at 202-224-3121. For more information on the issue, and more ways to make your voice be heard, visit It'sOurNet.org.Update:For those following this debate closely, the key House vote is happening Thursday night or Friday morning on the Markey-Boucher-Eshoo-Inslee Amendment, which would add meaningful net neutrality provisions to H.R. 5252, the Communications Opportunity, Promotion, and Enhancement (COPE) Act. We believe anything less that this amendment would be a loss for freedom and innovation on the Internet.

10. SAN JOSE, Calif.--eBay this week unleashed a political machine that should make politicians envious: a national e-mail blast over Net neutrality. Meg Whitman, chief executive of the Internet auctioneer, called on more than a million eBay members to get involved in the debate over telecommunications laws and "send a message to your representatives in Congress before it is too late." "The telephone and cable companies in control of Internet access are trying to use their enormous political muscle to dramatically change the Internet," Whitman wrote. "It might be hard to believe, but lawmakers in Washington are seriously debating whether consumers should be free to use the Internet as they want in the future." This is the first time that eBay has used e-mail to urge its members to weigh in on a national issue and the first time Whitman has sent an e-mail to members under her own name, the company said Thursday. eBay--which has been active in a pro-Net neutrality coalition for years--confirmed that more than a million e-mails have been sent out so far, but declined to offer a more specific number. The campaign is ongoing.

11. Pro-Competition • Doesn't the Internet already have tiers?Yes. Consumers have long been able to choose from a variety of Internet access tiers: dial-up, the "slow lane;" different speeds and prices of broadband, the "fast lanes;" or WiFi access, the often "free" lane. Internet backbone businesses have long "peered" differently with tiers based on size and bandwidth. • Are all bits treated equally on the Internet today? No. For a variety of legitimate reasons internet traffic is treated differently. Economics/competition: People pay for different speeds based on their individual needs and means. Law enforcement/public safety: Need to be able to treat bits differently to prioritize for 911 and first responders. Network security/quality of service: Networks block spam and viruses; manage bandwidth to guarantee service. • Are all websites treated equally today? No. It is common industry practice for search engines to give preferential treatment in search results to websites or "sponsored links" that pay them the most money for top placement. That's competition.

12. Pro-Competition • Is there sufficient broadband competition? Yes. Competition is flourishing and increasing. In addition to cable modems, DSL, WiFi and satellite broadband, there are increasingly, 3-5 wireless broadband options and broadband over power lines. Faster/cheaper microchips continue to drive the increasing number of broadband access alternatives. • Is net neutrality -- neutral? No. There's nothing neutral about the government: dictating one and only one way to design networks; creating an innovation double standard where innovation at the edge of the network is encouraged but discouraged inside the network; or rigging the game by picking winners before the game is played. • Would net neutrality discourage innovation?Yes. In truly Orwellian logic, net neutrality proposes that the only way to protect innovation is to restrict it. Innovation is all about being different, the freedom to be different. Net neutrality mandates sameness. • Would net neutrality reverse current Congressional policy toward the Internet? Yes, Congress's current policy for the Internet is "to preserve the vibrant and competitive free market that presently exists for the Internet...unfettered by Federal or state regulation." • Would net neutrality reverse the competition purpose of the 1996 Telecom Act?Yes. In choosing regulation to promote technology innovation at the edge of the network, net neutrality would reverse the successful purpose of the 1996 Telecom Act which is: "to promote competition and reduce regulation to encourage

13. WASHINGTON--Verizon Communications on Thursday dismissed concerns about Net neutrality as "hypothetical problems" and suggested that new laws mandating the concept were premature. C. Lincoln "Link" Hoewing, an assistant vice president at Verizon Communications, said that the ability to charge for services such as high-quality video is crucial to being able to afford the multibillion-dollar price tag of upgrading its network-to-fiber links. "We could put other services on those pipes--it's got a lot more capacity to do this," Hoewing told the Computers, Freedom and Privacy conference here. That would help "to make it more viable economically and financially and to help us compete." Calling concerns about Net-favoritism entirely hypothetical, Hoewing said: "I'm getting tired of it...We've never done anything that I know to interfere with anyone's traffic." Net neutrality, the concept that all Internet sites should be treated equally by broadband providers without any kind of discrimination, has become a hot political topic in Washington, D.C., this year. Lobbying for laws making the concept mandatory are firms including Microsoft, Yahoo, and Google--which have found allies in Democrats and are being opposed by Republicans. Republican members of the House of Representatives last week defeated a bid by Democrats to enshrine extensive Net neutrality regulations into law. Under the defeated amendment, the Federal Communications Commission would receive the authority to police the Internet for violations of the rules and ban any kind of preferential treatment based on charging extra fees. (Even without the amendment, however, the FCC already has taken action in cases of blocking traffic.) Hoewing said that Verizon is able to slice up bandwidth on its high-speed Fios service based on different lasers and different frequencies. But he declined to say what services might be offered. "I can't give you a portfolio of services that I can lay out that are coming out of the broadband networks that we're deploying," Hoewing said. Gigi Sohn, president of the Public Knowledge advocacy group that has pressed for neutrality legislation, said: "This is an issue of discrimination, or on the flip side, favoritism.“