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Remarks of Matthew Berry at the Broadband Cable Association of PA

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Released: March 13, 2014

REMARKS OF MATTHEW BERRY,

CHIEF OF STAFF TO FCC COMMISSIONER AJIT PAI,

AT THE BROADBAND CABLE ASSOCIATION OF PENNSYLVANIA’S CABLE ACADEMY

HARRISBURG, PA

MARCH 13, 2014

It is great to be with you this morning in the capital of the Keystone State. Speaking of that
nickname, there’s actually a dispute about its origins. Some say that it refers to the critical role played by
Pennsylvania’s delegation at the Continental Congress when the United States declared its independence
from Great Britain. Others argue that it derives from Pennsylvania’s central geographic location among
the thirteen colonies. Both of these theories make sense, but this morning I would like to suggest another
reason why Pennsylvania deserves the Keystone State moniker. This state has been and continues to be
the keystone of the cable industry.
As you know, cable television got its start right here in Pennsylvania, and it’s a classic story of a
small entrepreneur developing an innovative solution to overcome an obstacle. John and Margaret
Walson owned a small appliance store in Mahanoy City and began selling televisions in 1947. But there
was a small problem. Business wasn’t brisk because the surrounding mountain ranges made it nearly
impossible for area residents to receive Philadelphia television stations. So what did the Walsons do?
They put a utility pole with an antenna on top of a nearby mountain and retransmitted broadcast signals
through a cable into the valley. After that, television sales at their store exploded.
The cable industry has come a long way from these humble origins. But one thing that hasn’t
changed is Pennsylvania’s central role. Comcast, our nation’s largest cable company, is headquartered
here as are 5 of the 20 largest operators in the United States. And the American Cable Association, which
represents small cable operators, is located in Pittsburgh.
Like the Walsons before them, cable operators in Pennsylvania and across the country are
entering new markets and innovating to meet their consumers’ needs. It’s no exaggeration to say that
cable systems have been the keystone for broadband deployment in the United States. During the last two
decades, you’ve invested over $200 billion in infrastructure, building out and improving your networks.
As a result, the cable industry now makes broadband service available to over 93% of American
households, and a majority of wired residential broadband connections in the United States are currently
provided by cable companies. In Pennsylvania alone, cable connects more than two million customers to
high-speed broadband.
And the cable industry isn’t resting on these laurels for one simple reason; it can’t. Competition
is everywhere. On the video side, satellite providers, telephone companies, broadcasters, and over-the-top
providers are competing for viewers. On the broadband side, telephone companies and satellite providers
vie with you for customers—while many consumers are now choosing mobile options with the expansion
of 4G LTE service. That’s why cable operators are investing in their networks to improve performance
and embracing new wireless options, including a network of hundreds of thousands of WiFi hotspots
across the United States.
And it’s because of this competition that the Internet has been open and will continue to be open
regardless of whether there is government regulation. The private sector has overwhelmingly respected
Internet freedom, and the reason why is simple: It’s what consumers want. Let’s say, with a tip of the hat
to Billy Joel, that you’re living in Allentown, you’re a Service Electric broadband customer, and the
company decides to shut down your access to lawful content. You might switch to Verizon. Or, suppose
that you’re a Frontier customer in Breezewood, and the company prevents you from running applications
of your choice. There’s a good chance that you’ll switch to Comcast.

I wish I could say that everyone in Washington, DC, understood just how competitive and
dynamic the market is. But the federal government is all too slow to recognize competition, too quick to
impose regulation, and too dismissive of the harm to consumers and innovation caused by too much
meddling in the marketplace. This is the same government that believed tying would allow Microsoft to
monopolize the browser market and thought AOL would dominate instant messaging forevermore at the
turn of the millennium. So I think that Congress got it right back in 1996 when it wrote that the policy of
the United States is “to preserve the vibrant and competitive free market that presently exists for the
Internet . . . , unfettered by Federal or State regulation.”
And yet, the Federal Communications Commission is once again gearing up to regulate Internet
service providers (ISPs) with net neutrality rules. This will be our third attempt to regulate network
management practices. In the interest of full disclosure, as the Commission’s General Counsel, I was
involved in our first effort, which the Court of Appeals invalidated in 2010. When the FCC then tried to
adopt so-called open Internet rules, the D.C. Circuit struck down all but one. So as we are about to take
our third bite of the apple, it seems that the Commission is taking its inspiration from the proverb
popularized by the British author William Edward Hickson: “If at first you don’t succeed, try, try, try
again.”
This morning, I’d suggest the Commission look to an American source: Reader’s Digest. In
1949, it published a “Quotable Quote” that was attributed to the legendary comic W.C. Fields: “If at first
you don’t succeed, try, try again. And then quit. There’s no use being a damn fool about it.” Now, it’s
not entirely clear whether Fields ever actually uttered these words, but when it comes to regulating the
Internet, they are wise counsel.
To be sure, no one should confuse opposition to government regulation with opposition to an
open Internet. Indeed, I strongly support an open Internet. A decade ago, then-FCC Chairman Michael
Powell set forth four Internet Freedoms. “First, consumers should have their choice of legal content.”
“Second, consumers should be able to run applications of their choice.” “Third, consumers should be
permitted to attach any devices they choose to the connection in their homes.” “And fourth, consumers
should receive meaningful information regarding their service plans.” These pro-consumer principles
attracted wide, bipartisan support and have become a mainstay of our nation’s broadband marketplace.
So how have advocates of government intervention responded? They’ve tried to move the
goalposts. Everyone used to agree that an open Internet was tied to consumer freedom. No longer for net
neutrality advocates. Now the focus has shifted to flyspecking network management practices. But
before doing so, we need to think long and hard about whether taking that step is really good for
consumers.
Consider the basis of net neutrality: the concept that all bits are equal and Internet service
providers must treat them as such. In effect, it’s a strict non-discrimination principle. To justify that
principle, net neutrality advocates often analogize a broadband connection to a dumb pipe, simply moving
bits from one location to another. But dumb pipes aren’t an accurate depiction of today’s technology.
And it certainly shouldn’t be our goal for the future. Our aim shouldn’t be to crisscross the United States
with dumb pipes.
Rather, we should aspire to connect all Americans with smart networks. And private enterprise is
doing that. The user datagram protocol (UDP) wasn’t designed for high-quality voice applications—but
VoIP providers have made it work through smart design. The transmission control protocol (TCP) wasn’t
designed to stream movies—but over-the-top video is a reality thanks to content delivery networks, direct
interconnection, and other engineering feats. Cable systems weren’t designed for two-way traffic—but
they are now the most commonly used broadband networks in the country.
In other words, innovation within networks is critical for both consumers and edge providers.
Consider the following scenario. A company offers to monitor the vital signs of a homebound individual

with a chronic disease remotely over the Internet. During periods of network congestion, should a
network operator be able to prioritize that service over other data? Or should the network be required to
treat health-care monitoring the same as a YouTube video of John Travolta mangling Idina Menzel’s
name at the Oscars? The answer is obvious to this consumer. If you have to wait a minute to see the clip
of John Travolta introducing “the one and only Adele Dazeem,” that’s annoying. But a one-minute delay
in notifying your healthcare provider about a change in your vital signs could mean the difference
between life and death.
Now consider the edge provider’s perspective: That Internet-based home health monitoring
service isn’t likely to fare well in the marketplace if it doesn’t work reliably when there is network
congestion. Indeed, different applications rely on different characteristics of the network—reliability,
latency, capacity—to succeed. A smart, dynamic network that can prioritize traffic and otherwise
respond to the needs of all participants in the Internet ecosystem will inevitably create more opportunities
for innovation at the edge than will a dumb pipe.
Some advocates of government regulation concede that not all prioritization is nefarious. They
acknowledge that strict net neutrality begs the question of what equal treatment means. For example, is
the first-in, first-out approach equal because it is agnostic with respect to content or applications? Or is it
inherently discriminatory because it disfavors content and applications that are sensitive to latency?
These advocates instead contend that the FCC should permit good prioritization and prohibit bad
or “unreasonable” prioritization. That’s what the FCC tried to do when it adopted the now-vacated Open
Internet rules. Of course, this move just begs another question: What is “unreasonable” discrimination?
To answer that question, the FCC said some general categories of network management practices were
“likely reasonable,” set forth factors to use in evaluating whether a practice was reasonable, and listed
types of practices that “we would be concerned about,” including arrangements that would raise
“significant cause for concern.” All that was missing was a “super-duper cause of concern” category.
No one has ever been able to come up with a bright-line test. Rather, the approach is reminiscent
of U.S. Supreme Court Justice Potter Stewart’s famous definition of pornography: “I know it when I see
it.” In other words, this is not an area conducive to government micromanagement. We should want
network operators to be focused on innovating and providing the best service possible to their customers
rather than guessing how the FCC might respond to a particular network management practice. A rule
based on amorphous and subjective value judgments will inevitably breed caution and chill progress.
Moreover, the FCC isn’t even well-suited for this task. It’s not exactly a secret that we can take a
long time to resolve proceedings, delays that in this context would impede innovation. Issues at the FCC,
like those at any agency, are easily politicized, and operators’ network management practices shouldn’t be
a function of whose lobbyists are well-connected or which companies are in political favor (or disfavor) at
any given moment. Rather, in the dynamic, ever-changing broadband environment, network management
practices should be a function of providers’ responses to their consumers’ demands.
There’s another reason we should stay the government’s hand when it comes Internet regulation.
Premature regulatory action could prevent a two-sided market from developing, even if such a market
benefits everyone in the Internet space.
Building and upgrading high-speed broadband networks is an enormously expensive undertaking.
In the last fifteen years, for example, the private sector has invested over $1 trillion in our nation’s
broadband networks. And these investments will continue to be necessary because Americans are
demanding higher capacity networks. Most notably, our appetite for data-intensive, high-quality Internet
video has grown and will continue to skyrocket. Today, video constitutes over half of all downstream
Internet traffic on fixed networks in the United States. And by 2017, Cisco projects that figure will
increase to sixty-nine percent.

The question then becomes: Who will pay for network upgrades to come? After all, money
doesn’t grow on trees. In a one-sided market, the answer is simple. Consumers will pay. But why is that
fair? Why should the paper salesman from Scranton, the pub owner from Philadelphia, and the piano
teacher from Punxsutawney bear the entire burden of expanding our nation’s broadband capacity? How
is the government mandating such an outcome “pro-consumer”?
In a two-sided market, by contrast, funding can come from both consumers and content providers.
For consumers, that could mean lower prices and more competition, as payments from content providers
displace consumer payments and draw competitive providers into further deployment. And if a content
provider pays for a better connection and helps to fund network upgrades, that’s all to the consumer’s
benefit.
Some content providers might be eager to participate in a two-sided market. There were reports
last year, for example, that ESPN was in talks with a major wireless carrier regarding a sponsored data
agreement where ESPN would pay the carrier for its content not to count against consumers’ monthly
data caps. The Wall Street Journal noted that “[s]ubsidizing wireless-data usage would make sense for
companies like ESPN whose content has seen a surge of mobile-phone viewing.” And while the value of
additional revenues to network operators is obvious, people sometime overlook the value to the
consumer: more data at the same price.
Indeed, many content providers recognize that their business models place substantial demands
on ISPs’ networks. Netflix, for instance, accounts for about 30 percent of all Internet traffic in the United
States today. It’s in Netflix’s interest to make sure their consumers have the best user experience, so it’s
no surprise that Netflix has been working directly with Internet service providers to improve that
experience. Although some call these direct-interconnection agreements a violation of net neutrality, I
see no reason why the government should stifle these two-sided business models rather than allow the
market (and the network) to develop organically. As FCC Chairman Tom Wheeler put it: “[W]e’re . . .
going to see a two-sided market where Netflix might say, ‘well, I’ll pay in order to make sure that you
might receive, my subscriber receives, the best possible transmission of this movie.’ I think we want to
let those kinds of things evolve.” He’s right.
To be sure, good-faith concerns have been raised about a two-sided market. Most common is the
objection that it would make it harder for smaller content providers to reach consumers. And while this is
an argument that deserves a response, at the end of the day, it misses the mark.
President Kennedy, speaking about our national economy, famously said that a rising tide would
lift all boats. Well, when it comes to broadband, increasing network investment will lift all content
providers. When ISPs boost capacity and make their networks smarter, that’s good for industry giants
and small start-ups alike. And there is simply no evidence that permitting a two-sided market will lead to
ISPs interfering with consumers’ ability to access the lawful content of their choice. Indeed, as explained
earlier, such action likely would cause providers to lose customers.
*
*
*
Congress declared eighteen years ago that it is the policy of the United States to “promote the
continued development of the Internet” and that phrase—“continued development”—is vitally important.
President Reagan once said of the United States that we are “a land that has never become but is always in
the act of becoming.” Something similar could be said about the Internet. It is not static; it is dynamic. It
is a network of networks that has never developed, but is always in the act of developing.
Accordingly, the FCC shouldn’t try to lock in place today’s broadband business models, and it
shouldn’t try to codify yesterday’s network management practices. Rather, it should stand aside and
allow for the Internet to continue developing, to continue evolving. Such restraint should be the keystone
of our nation’s Internet policy going forward because it will maximize our nation’s broadband capacity
and produce the smartest networks, outcomes that would be good for consumers, edge providers, and

network operators alike. Let’s continue to give providers the freedom to respond in dynamic, innovative
ways to consumers’ demands. This is the approach that has worked ever since the Walsons first brought
cable service to a valley not far from here.
Thank you very much for inviting me to join you this morning, and I look forward to answering
your questions.

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