>> guest: we are a company that collects real estate data public record real estate data. a lot of people know us for collecting foreclosure data. we actually have people who go out and collect that from counties across the country but we also collect all other types of real estate data from tax and deed mortgage type of data as well as what we call home facts data. anything you want to know about a house that might affect the value of the house. >> host: so how would you describe the health of the u.s. housing market? >> guest: i would say we are kind of in a bid of jekyll and hyde housing market. there's a lot of good signs when you look at a specially home prices but under the surface

there still some lingering distrust left over from the housing crisis that hasn't been fully dealt with yet so i think that is what everybody is concerned about along with the somewhat anemic economic growth that people are concerned that this housing recovery is not for real or it's not as good as it appears to be. so we look at home prices had a very big jump in many areas in and home prices in 2013 but we are starting to see those numbers come down in many markets across the country. foreclosures which we track are down to nearly prerecession levels. actually we came out with the april numbers yesterday. there were 115,000 properties with foreclosure filings in the month of april. that's down from a peak of over 367,000 in march of 2010 and we are almost back before the recession we were seeing about

85,000 foreclosure filings a month so we are getting closer to that level. that negative piece is largely gone from the market. housing prices are going up but there is what i call a hole in the housing recovery that consists mostly of first-time homebuyers and move up buyers not dissipating as much in the housing recovery as you can see cash buyers and investors participating in the housing recovery and that's a concern that this is not a sustainable as we would like to see. >> host: there was an article recently in "usa today." here it is priced out of the dream talking about the fact that middle-class -- homeowner today. >> guest: we did an analysis of median incomes which are largely stagnant versus home prices and also average rental rates across the country and i'm not sure if that article

referenced our data but it was was -- we found that in one out of three -- if you look at it on a county basis it doesn't look so bad. only 20% of counties across the country would say are unaffordable and that specifically for rent the average mortgage payment is more than 30% of the income but when you look at it on a population basis for rent, it's about 34% of the population lives in one of those housing markets where rent is more than 30% of the median income so it's like one in three americans living in an unaffordable market technically unaffordable to rent. then we look at why. it's better to buy less expensive to buy than to rent in most of the country but still there is 15% of the population is living in one of those markets where the median income

or excuse me based on the median price of a home you would have to spend more than 30% of your income to make that monthly mortgage payment. and one of the things we noticed is that a lot of these unaffordable markets to buy and to rent are in areas where the younger -- the younger generation lives and so this is a problem because those younger potential renters or buyers are the ones who we would expect to be kind of the foundation of the housing market growth and in becoming those first-time homebuyers so yeah on affordability has kind of snuck up. it's kind of somewhat surprising because of such a dramatic rise in home prices over the last year and many of these markets markets -- we looked at 47

markets across the country where it's unaffordable to buy and rent. maybe not surprisingly many of those are in coastal california. all five boroughs of new york are included. many of the markets where the younger generation lives it's unaffordable to buy and to rent although it's slightly most of those markets it's actually slightly more affordable to rent that than it is to buy. >> dina elboghdady is washington looking at affordability? we will put the numbers up on the screen divided by region. >> guest: there has been a lot of talk about affordable housing for lower and middle income people. that's part of the bill. one of the reasons installed as a lot of the limb -- liberal democrats on the committee didn't think there were enough protections and therefore lower and middle income people and fannie and freddie for a long time have had goals. they have had to buy a certain number of mortgages from people

that are in underserved areas. this bill that passed yesterday would eliminate those goals and just set aside a bunch of money for that purpose. and so that was one of the major stumbling block -- blocks for this bill. a lot of the democrats didn't think the access issue was there. >> host: what is the fhfa and what is its role? >> guest: that was the agency created after the government took over fannie and freddie and it oversees fannie and freddie and there's a lot of attention focused on this agency now because it has a new director melvin watt a longtime north carolina congressman and he is basically now saying that until congress comes up with a plan he does not want to reduce the footprint of fannie and freddie on the market which is a huge reversal from his predecessor who is saying look these two institutions have to be wound down. i'm going to do everything to prepare for that wind down any research using the footprint so that was a major policy shift.

>> host: daren blomquist there have been a rash of articles recently about the fact that student loans may be contributing to the bad housing markets. have you seen those and what is your take on that? >> guest: yeah i think it's really interesting and it makes sense. we don't have the data on the student loan specifically but it makes sense that if you have a bunch of debt coming out in the numbers are pretty staggering when you look at some of these reports you have a bunch of student loan debt coming out of college at that point where in the next two years you may be potentially buying a house you may not want to take on more debt. when i look at our data on that it seems to be more tied to just even if you don't have additional student loan debt

these markets where a lot of the younger generation the millennials are living are just very unaffordable even if you didn't have that additional debt to deal with. we looked at mentioning these markets, we looked at the top 50 zip codes that are least affordable to rent in. many of those are in california company york in new jersey. the 20 to 34 age range is 20% higher than the national average is in those 50 zip codes and so taken aside whether or not they have additional debt just looking at the average income median income that would be needed to afford properties in those areas is pretty tough. in those markets on average you need to spend 48% if you are earning a median income come to

you need to spend 48% of that to pay for an average rent on a three bedroom home is what we looked at. it's even less affordable to buy so you have to spend 53% of your income if you are earning a the median income in those zip codes and so i think fundamentally it has even more to do with just the opportunity whether or not you have that additional student loan debt but that certainly makes it tougher when you have that additional debt. based on the fannie and freddie guidelines that although mel watt to address this in his speech the other day the traditional amount is what they call debt-to-income ratio is 43% so if your monthly debt you are paying out to student loans or other debt is more than 43% of your income that's going to automatically in many cases disqualify you for getting a mortgage and so markets congo

there are many counts against potential first-time homebuyers. they're living in markets that are unaffordable anyway and they have this additional debt that's going to make it harder for them to qualify for mortgage so the deck is somewhat stacked against them and that is i think part of why we are not seeing first-time homebuyers the younger generation entering the housing market is much. the homeownership is much lower. klesko dina elboghdady. >> guest: for first-time buyers on the affordability issue first-time buyers have a hard time getting the cash down payment together and that hits people right out of college are cheekily hard. it's not just affordability but access to mortgages. it's a lot tougher to get a mortgage these days ever since the financial crisis hit and people now have to have incredibly high credit scores to get in.

so it's a two-pronged issue. it's unaffordable -- affordability issues and an access issue. >> guest: i would through a third prong in there. one of the fundamental issues in this housing market is low inventory for sale so even if you overcome those first two hurdles that dina mentioned you are competing against other buyers. many of them we are seeing in this market are cash buyer so even if you have and are able to qualify for a mortgage and you can afford it you may be competing against buyers who have cash and they will go to the front of the line in and the multiple offer situation and that's challenge of bull. >> guest: investors have been playing a big role in the market and part of the reasons prices shot up. they were snatching up all these foreclosures on the cheap and offering all-cash all the time and a lot of people got shut out of the process. >> host: i think i saw an

article that 80% of manhattan home sales or new york home sales were cash. >> guest: cash sales are playing a huge role. i had not heard that number before. >> guest: that's actually something that we looked at and i was just discussing with someone in manhattan where i am right now an appraiser here who is very knowledgeable jonathan miller. we were looking at those numbers based on real track data. it's between when you dig into the main meat of the market which are the condos and townhomes its 60% better cash sales taking co-ops which are a little different animal out of the mix but still the end result is it's still very high. 60% at least all the way up to 80% depending on what housing stock you look at her cash sales. >> host: quagmire tweets in dina elboghdady it is not the federal government's job to

quote unquote save housing. how involved is the federal government in the housing market? >> guest: extremely involved. they played an outsized role right now. between fannie freddie fha and va i think they have something like 80% of the market right now so they play a huge role in supporting mortgages. >> host: buts take some calls for two guests. todd in loman bill george or you are first good morning. >> caller: hi. [inaudible] they continue to buy bad insurance loans from people like bank of america. fannie and freddie have to take those loans back to the insurance insurance process a number two what you have going on here is you have the investors that i have these foreclosures. the agents list these things and don't really listen. they are not exposed to the market in a reasonable amount of time.

the only thing you have on these houses are investors paying cash and buying them 40 cents on the dollar and then they are renting in driving up rents. that is what happens to supply and you have builders who have all foreclosed and millions of dollars in land. there back on the market now building under a different name in a different subsidy. they still get $12 million worth of loans from these banks again. it's beyond me rate i'm watching the data watching the date in the atlanta market and is just flat out crazy. fhfa is prime and the va system the whole appraisal process is a flat-out joke. you are not getting jirga valuations on what you are a fan bind that i will tell you what 50% on commission is just nuts while we are still paying that is crazy. >> host: todd you sound awfully knowledgeable about this. what kind of work you do? >> caller: i have a real

estate license. i do this every day for a living and i swatch every day the markets increasing due to supply and demand. you write about the cash on the market and they do not expose them to the market. they sell these investments and want cash. the loan officers won't do the fhfa k. 02 program. you have these tracks that no one will do and fhfa flown on because it doesn't qualify because it's trash. >> host: how would you describe the housing market in atlanta? >> guest: it's great. if you have $100,000 you can go to the courthouse and buy a couple of houses for 30 or 40 grand that would sell for 80 to $90,000 for a buyer relatively easily.

>> host: thank you sir for that. daren blomquist what response do you have for that caller? >> guest: the atlanta market is very interesting and we just recently have been talking to some folks in the atlanta market who are little bit nervous that the investor activity there is so strong that there is going to be when those investors pull back and i'm talking about what we call institutional investors often backed by hedge funds big private equity money that's coming in and buying up hundreds of properties as rentals. anyway the concern is if and when they pull out of the market the market will experience a downturn in atlanta. atlanta is the number one market when we look at our data at realty trac are these institutional investors and 25% of all sales one in every four sales is going to one of these big institutional investors in atlanta.

so it's certainly a hotbed of those investors and the majority of them are definitely paying in cash. i think one of the things he mentioned the 203k mortgages one of those hidden gems is not available to investors but it's available to occupants. it's underutilized unfortunately. it allows you to go in and buy a property and get also as part of the financing money for the rehab so it's particularly suitable for properties that are in highly distressed and need extensive rehab. you can go and and not only get the purchase money to buy the property and the rehab money and i agree with him it tends to be underutilized because i think from a lender's perspective for mortgage originators perspective it's a little bit more for complex and difficult one to deal with. >> host: the new head of the federal housing finance authority mel watt spoke this

week. here's a little bit of what he had to say. >> i know that we purchase risk remains a top concern for the mortgage industry. lenders believe that there is still too much uncertainty in this area for them to ease their credit overlays. and ultimately this undermines the goal of improving access to mortgage credit for creditworthy borrowers. after extensive discussions with fannie, freddie and lenders over the past several months we are making a number of refinements to address some of these concerns. as we authorized and as fannie and freddie announced yesterday they are going to relax the payment history requirement for granting representation and

warranty relief by allowing to delinquent payments in the first 36 months after acquisition. lenders will also get loan level confirmations when mortgages meet performance benchmarks and when they pass a quality control review. the enterprises will also eliminate automatic repurchases when a loans primary mortgage insurance is rescinded. >> host: 's dina elboghdady how significant is what mel watt announced? >> guest: is pretty significant. we have to put it in context. during the housing bust a lot of loans started doing that in fannie and freddie started reviewing it saying these lenders did not meet our guidelines. they sold us these loans would didn't meet the standards they were supposed to meet so you go

so you the lenders had to buy back the loans. the lenders had to buy back the silly and civil loans. as a result they tightened up all other standards because they don't want to be in that position again. that's the access issue we were talking about earlier. they just kept tightening it to the point where people were saying the pendulum has swung too far in the other direction now. basically what director watt was saying was he would loosen some of the restrictions so that they wouldn't have to buy back the loans under certain conditions. >> host: the next call for our two guests franken troy, new york. you are on "washington journal" talking about the housing market. >> caller: thank you very much. i love the information. but i do see that up here in albany in the area that taxes almost supersede the mortgage and it just seems so hard.

your mortgage is 2500 in your taxes are 2200 or your mortgage is 1500 taxes are 1100. it's like why do the taxes keep rising and supersede even if you have a rental. you take your rental and in the beginning you purchase the unit to take an offset in taxes and you pay your mortgage to the point where you can't it's just like you have to come up with more and more. when does it stop? it doesn't seem like it ever does. i think an ethical idea question and i don't know if you guys have that answer. >> host: daren blomquist of realty trac any response for that caller? >> guest: yes and that's something we like to analyze more of the affected property taxes on the real estate market. property taxes are one of those things that a lot of homeowners when they get into homeownership whether an investor argued that living in a property you may

forget about that cost of homeownership which is pretty significant in most areas. i think new york has the highest property taxes of any state. it is extremely high and you know that can really raise the cost of homeownership. and push people to become -- so that is certainly something the federal government is not controlling but each state can look at that and maybe consider how the property taxes are affecting the health of their housing market. in on california where i live we do have the famous or infamous prop 13 that controls property taxes in an effort to keep homeowners from seeing this huge increase in property taxes once they buy the property but it's certainly a consideration and certainly a cost of homeownership that has to be figured into the equation.

>> host: doug is calling in from baltimore. hi doug. >> caller: good morning. i'm in the real estate business in baltimore and there's a demographic trend that you all have an address which i think and change some of the conclusions you are coming to. the milenials that we are seeing in the market don't own cars. many of them don't own cars to when you look at your definition of affordability is really different i think then what may be an older standard is. for them it is affordable as their other expenses they are not taking in and they are choosing more expensive rental options in urban environments than cheaper options in the suburbs. i think the fact that these markets are so hot and the high-priced markets are hot means by definition they are affording them. >> host: doug, what do you do in the housing market and how would you describe the housing situation in baltimore? >> caller: i do primarily

commercial so we built a lot of retail in downtown baltimore city where for decades there wasn't any and it's all customers coming in to new rentals primarily. for more all we are seeing the real estate market has been healthy downtown. the outskirts aren't as healthy and still have issues but the downtown area we are having a boom and is driven by empty nesters and young people. when i rent as a 47-year-old father of three and i don't know what somebody's and kids are paying for rent but it seems excessive. again their economic decision and formula is different than mine. >> host: dina elboghdady. >> guest: the one thing we haven't talked about with prices and i'm sorry to bring this up right now but prices have been moderating and so that's probably playing a role right now as well. they probably will keep moderating for the next year or so in the interest rates are

starting to come down just a little bit. >> host: american he wrote tweets in what exactly is wrong with the housing market? is it too expensive? is it too cheap? is a poor service? why? >> guest: right now the biggest problem going into this year was that a lot of people were under water in their homes meaning that they owed more on their mortgages than their homes were worth. that problem with the price gains we have seen in the past two years is now starting to get a little bit better. so that was an issue. then there's the access issue we talked about the tightening in people not being able to buy that the first-time homebuyers stand out to me is one of the bigger problems right now. the fact that people aren't entering the market means the whole pipeline gets jammed. if people can't buy their first homes and the people who are in those homes that are for sale can't move up and by the next home and so the entire system

gets gummed up that way. >> host: daren blomquist when you look across the country or their pockets that are really healthy and pockets that continue to have problems that began in 08? >> guest: yes, absolutely. we are seeing pockets and it boils down to the fundamentals in a lot of areas. just because the foreclosures have gone away in a place like detroit doesn't mean and when i say gone away they haven't completely gone away but the new foreclosure activity that the most visible sign of distress is back in detroit dupree recession levels. that market has some other fundamentfundament al problems. it means it's not a healthy market as healthy as many other areas. on the flipside i contrasted that in a market that has a similar situation to detroit but is much different. at the same time as phoenix where foreclosure activity is back to pre-recession levels so that negative gone --

is gone but there are more positives in terms of job growth and population growth. people are moving there and wanting to buy so it really is all real estate is local as every good real estate agent will tell you and that is certainly the case when i look at markets across the country. i did want to address the question of what's wrong with the housing market and piggyback on dina's comments a little bit. i would say to me the most significant issue is still that underwater issue that she mentioned. that has come down significantly but our data shows still 17%, 9.1 million homeowners with a mortgage or seriously underwater. that is down significantly but what that represents is nearly one in every five homeowners with a mortgage are kind of stuck and those are the move-up buyers typically in the market.

after an average of six years those folks would sell their homes which then provides more supply for the first-time homebuyers but because the move-up hires are largely absent one because they have negative equity or very little equity and also another issue we are hearing about his a lot of these homeowners who own homes and maybe they even have equity but they have refinanced that such a low-interest rate they don't want to sell their home because of a cell they will have to get into a higher interest rate when they buy a new home. they love that low-interest rate that they got over the past year or two and they are not as interested in selling because they very highly value the high interest-rate. anyway those homeowners who would typically become the move-up liars are not as prevalent and that's also trickling down and affecting the supply for first time homebuyers.

>> caller: good morning. >> caller: i used to work on the committee working on redlining which was in relation to the banking not investing in low income areas and not investing in housing areas as in detroit power here in ithaca. >> fannie may and freddie mac were part of the system that maintained it was specific banks across the country that were doing this to different areas across the nation. i am listening to one person in particular who said she would like to have fs j. disassembled so my question is what does she proceed that would be a technique that redlining

nationwide is not done. >> guest: one of the major problems as i mentioned earlier is the underserved areas and the affordable housing issues. but as i said a lot of liberal democrats were saying fannie and freddie play a very bold in that arena and we need to ensure that these goals stay in place. on the other hand the republicans, the ones who oppose the bill say of this affordable housing issue and the goals that were thrust upon fannie and freddie are the reason or part of the reason that the housing crisis occurred. it's been a hot political issue. >> host: dina elboghdady what is the fha and its role in the u.s. housing role? we talked about the fhfa which mel watt heads. >> guest: fha plays a very

important role. the federal housing authority and they basically have always been there for first time homebuyers. very low down payment loans and they have been playing a big role in the market particularly propping up the market during its darkest days after the crisis. they have had problems with delinquencies and i think they have raised their premiums five times in the past couple of years. >> host: is a premium? >> guest: a premium is a fee that's imposed on the loans so it's imposed on the borrowers. that has really cut down their share of the market but they are still there. i think they have 20% of the market and they support to 20% the mortgages. >> host: daren blomquist when you look at the national economy what percentage do you think the u.s. parsing market continues -- contributes?

>> guest: i don't know the answer to that question off the top of my head but it's a significant driver of the economy and they think it helps drive the economy on the upside and it also really was what led us in many are arguing many of the reasons got into the great recession tied back to the housing market which became overinflated and over speculative. so certainly it's a significant driver in the interesting thing is we are seeing this recovery feels like the two have been more separate. we have seen great science of the housing recovery but that hasn't seemed to affect and impact the economy as much as we would typically expect.

>> host: alan from pismo beach california. hi ellen. >> caller: hello. one thing that would change the profile of the market is the elimination of the tax deduction for a second home. that would put it back into the area for first-time homebuyers or for early homebuyers. i live in an area that a large percentage of homes are separate homes and vacation homes for people and it is driven the market to a level that is unaffordable for the average person living in this area. >> host: dina elboghdady? >> guest: the second market has gotten hit hard around here. we have seen it in the washington area and a lot of the beach communities. i get a lot of calls about that. >> host: do you know the public policy on back? are you allowed if you have a second home to take full productions like you are in your

first-time? >> guest: you know i'm just not sure. >> host: can weeks tweets in what's the risk of loosing the 20% down payment that caused the 2008 crash credit requirement for buying a home? >> guest: i'm sorry? >> host: what is the risk of losing the 20% down payment standard in buying a home? >> guest: basically what has been driving policy right now is that they want the homeowner to have more skin in the game. they want the homeowner to be invested and not feel like oh well i don't have much money in the house so i will walk away and take a house in foreclosure no big deal. that's what's been driving some of these higher down payment requirements. that's why fha has been so popular because it's minimum down payment is 3.5% at this point so people think there are no other alternatives in the market but there are some alternatives to a 20% down payment. >> host: greg and ventura california.

how would you describe the housing market in the ventura area of? >> caller: i think it's pretty much the same as it is across most of the country but one of the greatest concerns that i don't see here in new jersey are the rental markets. when we went to the housing bust its inflated false appreciation in most of the mortgages. but that also domino didn't to the rental market and after all the foreclosures in the rental markets and no one is addressing that. they seem to have be addressing all of these adjustments to mortgages but many of the first-time homebuyers are coming out of the market. it not only doughnut from the house and mortgages but it went into the rental markets and auto and inflating every part of our economy.

i think many people are stuck with the rental high prices right now. most of these people that ended up selling their homes found out they could get 50,000 more than what their neighbor scott and it dauman note it was false appreciation. those people ended up purchasing higher properties and invested into income properties because they got higher mortgages. they offered higher rentals and they never adjusted those rental rates. it seems to be turning the market at this point in time and i don't know how person is renting. >> host: daren blomquist? >> guest: yes, i actually bought my first house in ventura county california so i'm familiar with that market but i think what you are saying is really just part of the fundamental issue of inventory and at least the apparent lack

or low inventory in this market and that's affecting both homebuyers as well as renters. there is this limited inventory of homes particularly to live in and whether those are rentals or purchases it is driving up because there is still demand and homebuilders have not really ramped up back to pre-recession levels in terms of housing starts. there is this low supply affecting both rentals and rent rates are going up as well as prices of homes. i would agree with our statistics and definitely back up what greg was saying in terms of you have this additional supply in the rental market because of all the homeowners who have lost their homes over the last seven or eight years showing 7.7 million homeowners nationwide have either lost their homes to foreclosure or done a short sale and basically

lost their home because they were forced to. those homeowners now many of them have become renters and one of the things we haven't talked about is the whole idea of boomerang buyers. that's a little bit more of a fuzzy thing that these 7.7 million homeowners previous homeowners who lost their home to foreclosure how many are going to come back in the market rather than stay as a renter. how many of them are going to come back and want to become a buyer again? one of the things they fha did last year is to try to encourage the boomerang buyer effect was to lower the time it takes to requalify for a loan once you have gone through foreclosure. it used to be three years minimum to qualify for an fha loan and now it's down to one year and whether or not that's going to have an effect on the boomerang buyers still remains

to be seen but that's one element of this market that is i think going to help us know whether our housing market is going to continue more as a homeownership market for is going to continue shifting more toward a rental market. and what happens with those not only the millennials but with the boomerang buyers who lost their home during the foreclosure crisis with if they stay his renters or become homebuyers. >> host: dina elboghdady? >> guest: there's also the issue of supply is very real and that is why all eyes are on the builders. new home sales are a very small part of the inventory. most of the homes that are bought and sold are exist in home sales but because the supply is so tight the builders don't start building there are going to be problems but in areas like california there a lot of land constraints. either you are not allowed to

build or there is no room to build so especially in the coastal areas and that's why they start to get so expensive. >> host: my lambrix tweets in our government insured reverse mortgages the next u.s. housing crisis? >> guest: those that, more and more is a problem. the reverse mortgages have caused fha huge problems and in fact when fha was having its peaks in the delinquency rates those were to blame. those were who are starting to put measures in place. >> host: if congress interested in the housing market at a high-level? >> guest: extremely interested this issue with fannie and freddie has been going on for 18 months now. they have been trying to kabul together legislation. there's a lot of consensus that these institutions need to be one down in some way and the housing market needs to be less dependent on the federal government in more dependent on the private sector. the problem is nobody -- while everybody agrees on the goal

nobody agrees on the means so i think this is going to be an issue that dominates debate in congress for a couple of years. >> host: daren blomquist final question and this comes from boring file clerk. how can we return to a healthy housing market without risking causing another bubble? >> guest: yeah that's the million-dollar russian art trillion dollar question may be. i think we are seeing evidence in many markets that that's taking place. we are definitely as they think dina alluded to earlier starting to see softening in the home price appreciation and market a year ago we were seeing 30% home price appreciation and now it's down to 13% annual house appreciation which is healthy and decent but it's just not realistic to believe that 30% appreciation is going to continue year after year. actually i think it's a good

ring that we see some softening in home prices and ideally it's going to be more of a slow pullback from the bounce back we saw in 2013 rather than another drop off a cliff rated i would rather be complaining about the problems and talking about it alms we are talking about now which our credit is too tight. inventory is too low. i think those are better problems to have than we were seeing during the last housing bubble which caused the housing bubble. there is tons of inventory being built and probably too much inventory and credit is very easy to get. i think those are the problems that led to the housing bubble. we are seeing a deaf and -- different set of problems now so i think that's the reason is hopeful we are not going to see another housing bubble created. >> host: daren blomquist is the vice president of realty trac.

i think i called it reality check when i first started and i apologize for that and dina elboghdady is a financial reporter covering the housing industry or the "washington post." thank you both. >> guest: thank you.

>> we are sitting here today in the city designed by princeton princeton -- a frenchman l'enfant and architect. the great symbolic work of the sculptor and a gateway to the country in new york the statue of liberty a gift from france by a french sculptor bartoli. countless rivers and towns and universities and colleges all over the country with french names. we don't pronounce them the way they do but the influence of friends on this country is far greater than most americans appreciate.

on thursday the federal communications commission voted in favor of a new rule to prevent internet service providers from slowing down certain content on their -- they talked for about an hour and 20 minutes. [inaudible conversations] >> welcome. hello everybody. hi my name is tim lordan and i'm the executive director of the

advisory committee. this briefing today is called the fcc grant internet plans the open internet and massive mobile spectrum options. the reason we did this was because yesterday the federal committee patients commission issued to plans dealing with an open internet or so-called net neutrality along with a massive plan to rollout of more spectrum for mobile phones and devices so we have better broadband when we your honor mobile devices. they are both massively significant. they are important to the growth and vibrancy of internet no matter which way you feel about that particular issue and we wanted to brief consumers and members of congress and staff on the developments. that is what we are doing here today read a bit of housekeeping the hashtag for today we are going to use pound fcc net neutrality just because and our next briefing going forward is probably next friday. we have to find a room for that it will be on the efficacy of

the nsa surveillance plan. that will be next friday probably in rayburn but i will send out a notice about that. what we are going to do we are going to bifurcate this into first talking about the fcc's open internet plan for the first half-hour or so and then i'm going to pivot to a couple of speakers to lay out the mobile spectrum auction issue. we will try to do some q&a at the end of each session so please feel free to ask any questions you like. if you need more chairs as a whole stack of them in the corner and you can pull them out and sit anywhere you like. there are three up here in the front row if you need to. really quickly let me introduce our speakers from the first session on the open internet order. am i far right we have matthew brill a partner at latham watkins working for commissioner abernathy and then we have sarah morris who is with the new america foundation and

congressional staff. ahead of congressional relations is also named sarah morris but they are totally different people so keep that in mind. this is not the congressional relations fcc. then we have markham erickson a partnered steptoe and johnson and gus hurwitz a professor at the university of -- college of laws. different views on the subject and we will get going really quickly. if anybody hasn't heard about net neutrality or what it is i don't think we really need to go into much detail on what it means but basically it's the idea on the internet consumers access content and their applications and their services all be treated equally and how that happens in the legal authority for which has been a tortured conversation at least since 2005. let me just quickly i think the fcc laid out their plan yesterday.

chairman wheeler had a boat on his notice a proposal making and i'm going to ask matt to tell us how we got here. we were here in january's 17th after the d.c. circuit court struck down the previous fcc chairman's plan for open internet. this is another crack at it taking cues from the circuit court's decision and trying to rewrite it. chair and wheeler the fcc chairman had a vote 3-2 or at least two in favor and two against again spoke. then we are going to ask gus to lay out what happens now. then we will go into some discussion. so mad if you could tell us how we got here very quickly so we have a context for understanding the question and what the fcc did. >> thanks tim.

i've been involved in these issues for a long time. i was at the fcc from 2001 to 2005 and worked on early proceedings that gave rise to some of today's discussions and since that time i've been working representing network owners who have a strong interest in the wireless providers and others. i will try to get through the background quickly because i think it's helpful to understanunderstand how we got to today. one of the points i want to start with his back to 2002 in the fcc first confronted how to classified broadband services provided over cable networks cable modem services as they were often called at the time and the big debate at that time was whether these services in the committee patients act of 1934 as it was amended in 1996 whether the services should be considered telecommunications services subject to title ii of the communications act or information services which are generally regulated and often referred to as title i services. the distinction between those labels is important to you they

are mutually exclusive categories. telephone services are the archetype and more dan's data services can be telecom services when they are moving information from point a match point be without changing the content and in contrast to that information services consists of transmission plus information processing. when you are retrieving stored information and acting on the information in some way it's considered an information under the statute. with the fcc said in 2002 is broadband internet access provided over cable networks was an information service and only an information service that while transmission was involved in providing transmission of information between remote servers and the internet service provider and the end-user the fcc determined that the service when viewed as a whole from the consumer's perspective should be

regulated as an information service and therefore not subject to title ii or in practical terms traditional common carrier obligations to provide just and reasonable services none of it is common carrier mandates applied to broadband internet access. in the wake of that ruling the supreme court upheld that decision in the case called brand x. the fcc started what protections might accompany an information service. initial debate was not about rules for protecting consumers. the early debates were known as the open access debates. other internet service providers like earthlink wanted to make sure they had access to serve customers over cable operator's network or telephone company's network and there were lots of debates over whether the fcc should compel broadband providers to open up those networks in the third party isps would be able to step in and serve the customer. those mandates were never

adopted although they were debated for years. what really emerged was the foundations of today's net neutrality debate so we have the principles that consumers should have access to content of their choosing without being blocked by their internet service provider and they should have access to services being able to attach devices that don't harm the network and eventually the fcc codified set of principles in 2005 that were a statement of the expectations of the agency and an understanding that the commission would monitor developments in the industry. when the allegations several years later that comcast had throttled traffic that was peer-to-peer traffic using bittorrent protocol the commission broadened enforcement action in the policy statement from 2005. ever sold in the first court case in the court of appeals and the comcast case where the court struck down the order saying the fcc didn't have binding rules in place and hadn't justified

enforcement action against comcast. while that case is pending the fcc proposes open internet rules that resulted in the 2010 internet order and in that case went up to the d.c. circuit again and was reversed in part in the verizon decision. the fcc was upheld in its transparency requirements requiring broadband providers to disclose important information about their practices but its regulations prevented blocking of internet traffic and discrimination in various forms were remanded to the agency. that has brought us to yesterday's supposed rulemaking. i will handed off to gus to talk about the process going forward read. >> before i get to gus i forgot in my opening to talk about our process which is the congressional advisory committee host these events and conjunction with the internet caucus itself and congressman

bob goodlatte and anna eshoo and senator john thune and patrick leahy. the proposition here for this particular program is that the organization does not take any positions on legislation. this is a good issue to illustrate that. all we do is host as a platform balance discussions on these issues pros and cons because the internet is astoundingly important and it needs to be preserved and cherished. so i applaud and thank the congressional caucus and its co-chairs for supporting this program even though the chairs themselves disagree on these particular issues. i really would like to thank them and explained that is our process. as far as the process for the fcc, gus? >> guest: so to start in a similar vein as a little bit of an introduction my name is gus hurwitz and i'm an assistant professor of law at the university of nebraska college

of law where i teach telecommunications internet law and regulation and a great program with outstanding graduates doing important work in these fields. that's a quick plug because there is one of our graduates. i am going to talk about the process moving forward and i want to quickly start by putting a pin in the last point about the comcast case. centrists in question we might want to come back to how the comcast case might it come out have the fcc previously interpreted section 706 is applying to the internet. in the come case -- comcast case i said it applied but the process moving forward. what happened on thursday the commission voted to adopt the notice of proposed rule making. this is says the chairman has been very clear over the last couple of weeks the real beginning of the process. it's a bit to kill your in the

discussion we been having over the last several weeks about the nprm because it was leaked prior to the commission meeting where it was supposed to be discussed and adopted. all of the public input that has been happening over the last several weeks in public discussion has been premature until today. so what happens when the commission adopts an npr and? for those of you and i hope most of you in this room are familiar with the administrative procedure act the apa governed by an ordinary procedure that applies to all agencies for the most part. the agency has adopted proposed rules. at this point a public comment period is open. there will making process here is referred to as notice and comment. the agency has given the public notice and now is waiting for comment. over the next approximately 60 days between now and july 15 the agency will be accepting public

comment. following that we will have another 60 days through september 10. it's a 120 day period for reply comments so the public can submit replies to comments that have been submitted prior to july 15 through september 10. >> it's probably too early to suffer from fcc fatigue. >> it's never never appropriate to suffer from fcc fatigue. >> the house energy and commerce is holding a hearing on tuesday in the meantime. >> one of the interestiinteresti ng things that the fcc has done given the public's really substantial interest in the subject they have been adopting nonstandard mechanisms for the public to submit comments so there is an e-mail address which i assume will continue to be used through the public comment period where the public can

e-mail comments instead of having to go through the ordinary electronic system. that's an interesting procedural innovation that the fcc has put in place. what happens after these comments are received? september 10 to comment period will close and the commission will do one of three things. either it will throw its hands up in the air and say you know forget about it we are not doing it. that's unlikely to happen but it could happen. .. the chairman wants to have ths done by the end of the year. issuedal rule that is fromneed to be foreseeable the proposed rules that were announced yesterday. ,hey either have to be the same

notice, or a logical outgrowth of what is in the report. they cannot make up new rules will stop -- new rules. authorityalk about that was granted in 1996 and title to, which is a telephone service, there are openings for both of those. precise, itit more is currently -- they are proposing to use the weapons of comment on title 2 or other possible sources of authority. it is for wireless and hybrid approaches such as those that were submitted to the agency. the fcc refers to them.

their insert efforts from columbia university. most people know which professors those are. resulted in,, it would clearly be a logical outgrowth. >> they have both options? >> right. >> the third option they could do after the september 10 deadline is they could say, we need to think about this more will stop we will issue a further notice of rulemaking. that is another npr and. it will go through another comment cycle. machen happened many times. it probably will not happen in this days will stop the nprm that was issued was very good. there are interesting things being done there. summarize, it looks

like the nprm is a consumer choice of services. is like a bill of rights for consumers. what they can get an access. there is a no blocking rule, which is consistent with the last attempt. there are limits on privatization. that is a big question. there will be no internet fast lanes. speaking, iou stop sigh headline in the washington post that said internet fast lanes. we want to discuss that. then there is transparency. i think we laid out with the element was before. there will be some kind of business,- a start up a consumer ombudsman. we can dispute these things and

ask for permission to do certain things. >> usefully liked it much better than me. let me ask, how you feel this enhances or preserves nutty trolley? -- net neutrality? >> i'm sarah morris. i am the senior policy counsel for the open technology institute. we have been long-time advocates for open internet protection will stop i think those words will get misinterpreted and tossed around stop we, this with a strong concern that the internet is not just a platform for innovative business models. is a platform for innovation itself. and for unfettered communication access among users.

at the commissioners pointed out, this is not just about companies. this is about consumers and users and their ability to participate. to answer your question about what this means for the future of the open internet and our general reaction, this rulemaking is quite comprehensive. forredicates the framework the new net neutrality rules on a legally shaky ground. the framework itself is difficult to apply in real life. it will not afford the same types of protections that we saw before. thinking pretty critically about what this means.

there is a long way to go. >> thank you. as a communications lawyer, this nprm is a phenomenal document. it has everything you would ever want to tackle all stop it has raised intriguing questions. everyone believes in open internet. that was clear in the meeting. this is complicated and worth unpacking. what is in controversy and what is not? i thought i would start with what is generally not in controversy. based on prior court cases we

have seen, and with has been submitted. what is not controversy is two things. there is a certain -- a theory. contributes to broadband adoption. innovation by internet companies . the fcc goes through some examples of what has happened since 2010 that further shore up that theory. they were very clear on that point that the fcc had adequately lanes the reasoning. the second issue that is not controversy is that broadband havenet access providers the ability to limit openness. supported andy explained their reasoning.

then we get into what is really a controversy. is two in controversy things. whether and how to prevent privatization. the fcc wants to know whether there should be prioritization on the internet. how do they adopt that? >> is that the fast lane we've been hearing about? >> i hesitate to characterize it as a fast lane full i'm not sure how you would describe that. what they are proposing is a base level of service. it encourages individual organizations. the second piece that is that controversy is what parts of the internet ecosystem that such broadband access should be subject to the rules? there is

internet access that you pay for through cable or dsl. there is mobile internet access through your cell phone. folks that are interested in addressing where the cable companies and phone companies service attaches to the internet. those three categories will be the commission has said they will not change the scope in that regard. the rules will apply to wireless access with regard to mobile access. mobilee will prevent a provider from blocking website and applications that compete with mobile services. we will not get into discrimination issues, which are not in play. -- the firstsue

issue is the scope. the legal issue is framework for adoption of both worlds. that is whether the commission bases its authority on a provision in the statute that direct them to take necessary steps for broadband adoption. i would characterize it differently and say that the commission has strong legal ground to or. the question is, how far can they go? is, whether they anchor their roles in telephony that kids that impose, carrier obligations. the commission raises some questions about that post do they anchor some of this in roles? lastly, there could be other theories of jurisdiction and

whether it is based on cable statutes or some other statute that they could use to justify some part of the roles. there's a law in in the rules. onis important to refocus the controversy of the scope of the roles. that is why they propose rules -- there is a lot of controversy will stop that has beenwar said. i will not cite you how to respond to stop privatization, walking. feel free to comment. >> i agree with a lot of what markham has said. in terms of the things that are not in controversy, i would not fully agree that everyone would say broadband providers have an

incentive to cause harm. they are operating in a competitive environment. they want the best possible service for their customers. if they did something harmful, there will be a price to waive. -- pay. old examples that were trotted out as babies is for net neutrality would never happen. the old example is that with a provider denied access to amazon.com and shifted traffic to barnes & noble? they shifted your attempt to reach certain websites. there will would be a massive consumer backlash. -- such conduct would be condemned. it would not occur in the marketplace. all agree thatd there is enough competition that providers would never engage in that behavior. there are fair debates about

whether some of the priority arrangements that can be called or innovative business arrangements, whether those are good or bad and whether there are incentives to engage. a wad of the action in these proceedings will be about prioritization. the is that it is important to understand that there can be good prioritization or bad. it is easy to think of examples of both all stop charming wheeler says that he has priority access to the telephone network stop we should all retain that on the internet. serviceagine a remote where there is a heart surgeon and a city is consulting with a patient in a remote area of stop let's imagine that application. it would seem logical to prioritize that traffic over other forms of traffic that are

less sensitive. at the other end of the spectrum, we all agree that if a broadband provider had exclusive arrangements to prioritize traffic, that would be anti-competitive. the point and the takeaway is that prioritization itself is not inherently good or bad. it depends on the context. ii orr we are under title section 706, the commission has appropriately proposed to judge these things on a case-by-case basis. the choice of legal authority will not affect that all stop their proposing to make context specific case-by-case judgments about the appropriateness of certain behaviors. that makes sense. the scope is missing. if we're worried about consumers

having access to the content they are choosing, the threat to that openness does not come only from broadband. hearingerested in groups arguing for open internet. protection seldom talked about what is going on outside of this. we have real-world examples all the time. last year and this year, and retransmission disputes. content owners have withheld content from customers to essentially punish a cable provider. often consumers are damaged in that. they cannot get access in a retransmission dispute within cbs and time warner cable. withheld it from internet access address is longing to time warner cable will stop some of those customers were not time warner customers. they might have been directv subscribers.

the weird thing from my perspective is that those who support a role for government in promoting openness do not seem to be talking about those sorts of comments, which are not hypothetical. they are occurring. going to haveare this debate about the role of government and it will make judgments about what sorts of discrimination are good or bad, it is hard to have that debate without looking at other players will stop without looking at whether a content owner or other service providers are acting in a way that violates these principles. >> that is interesting. i was not expecting to hear retransmission issues. do you want to address the elephant in the room? >> i will address several elements for -- elephants. i want to say that mr. brill is a wise and learned man. i also would have brought a

retransmission fees as an example. saysetaphor is, google that they will not allow their --ver -- searchers to use time warner cannot use it. cox can. say, cut usx could a better deal or we will cut off netflix to you. your customers will be harmed. >> there is an interesting history here. the baseline to take away from this history is that the content has as much or more market power than the distribution side. we as a society, we like the content side of stop it is valuable to us. we tend to side with the content side. there is fiber in the ground. why is that so much money?

if you look at the 19th century and telegrams, there was major litigation. there were investigations. actinged like they were anti-competitively. they were harming the public. after substantial investigation, the government realized that this is the news agencies that are bad actors. the entire investigation shifted to focus on them. in many ways, this is the same dynamic. the content side and the distribution side, these are big corporate entities will stop frequently the consumer gets stuck in the middle. we turn our initial attention and blame because we like the content guides. we realize that it is the content guys who are exerting market power. to get back to the original is then, it started as

open internet a good thing right acting? i think it is a bad thing for a particular reason. no matter what the commission does, unless it goes for the option that i outlined before that it won't do saying no, we won't do anything, what will result is another 2-4 years of litigation. that will be followed by 2-4 years of bickering over the details of implementation. that will just be on jurisdiction issues. that will not have a sensitive -- substantive issue. the commission has authority to take action against a wide range of net neutrality violations. anything they could ultimately take action against. section 706. my preference would be for the

commission to say, we are not going to make rules here. we will wait for real problems to occur. ?> can you give me examples given theou name comcast decision and given what they did? what authority do they have? >> the comcast example is a great example. if the current understanding of section 706 as applied to the internet were to have been the extent interpretation, that case could have come out like differently. they dismissed it on certain grounds. the fcc could not enforce the policy. there was discussion about the nature of a policy statement. >> i am confused.

you are saying that the circuit court read in 2706? >> the fcc breathed new life into it. in 2010 with the open internet we arethe fcc said, revising our prior understanding of 706. with our new understanding, it does apply to the internet. under basic principles of administrative law, the agent can change their entire interpretation. there are two important cases here. they are both fcc cases. the first is fcc versus fox. a 2007 case where justice scalia said that agencies can change our prior interpretations . a previous interpretation does not bar them from doing so. where the agency --

this was the continuation of the prior case. entities subject to a case-by-case adjudication have noticed that they might take action against them. they can take action against them. they can change the rules. there were a mind supreme court cases. >> will we get to the elephant in the room? glad this is the lightning round. of section 706. this is a knob adjusting. the burden of proof on the agency with the level of formality they need to go through to enforce the statute. is the unjuston and unreasonable discrimination. --y say it does not prohibit

it only prohibits unreasonable discrimination. under case law, that is express language that would need to begin in meaning. >> i have a ton of questions. >> can i respond? >> get your questions ready. we will come around with a boom mic. just speak into it. >> i want to talk about what is different in these rules, versus what was in the 2010 order. particularly in light of this dialogue that has started to unfold about the beauty pageant of whether we like content providers more. why the distinctions matter from an economic standpoint. i want to point out something that is interesting from a structure stand point of the proposed rulemaking. the commission is trying to that held theets

rules in the 2010 order. that was the no blocking rule and the nondiscrimination rule. , they talk about the transparency role. the no blocking rule as it is modified, and we can talk about specifics, but instead of going to the nondiscrimination rule, they go to codifying an enforceable rule. this is important because this represents a really critical distinction that the circuit pointed out. you can do the rules that you wanted to do in the 2010 order, that you cannot apply them to non-common carriers. this is why the fcc is bending over backwards to figure out how to protect against discrimination and how to do so in a way that allows individualized bargaining.

it is trying to do nondiscrimination through rules that protect against the opposite. that is important here. getting back to a point that was made at the beginning about how things are not controversial from a legal standpoint in terms said andye 2010 order d.c. circuit agreed with -- that is, there is a risk of discrimination by internet service providers that would interfere with the advancement of telecommunication services. i want to talk about why that is true. a broadbande subscription in your home, you only have one for residential home broadband. not ascribe to comcast and another service provider. that is a terminating access monopoly for to reach each

subscriber of a network, a content company has to negotiate or connect entrance met -- and transmit their content. terminating access monopoly is important. some of the other panelists may say that this is fiction gets people have cell phones and other tablets. i think we can all think about this as reasonable people. if i have a home broadband subscription, i will not use my four g service to watch netflix. my primary source of connectivity is my wired isp. i will use my phone to watch videos at night. i do so, but not over my data plan. i do so over my wi-fi network at home.

that is why we're concerned. we're are not concerned because we do not like i used. i have nothing against them. i do have concerns about the way that the internet is structured and the way we have seen historically that service providers take advantage of their status in the market. i want to clarify concerns and why they are specific to isps. >> we are in the lightning round. glad i will do this lightning version. i watch a lot of netflix over my verizon. i am a beneficiary of a grandfather data plan. not everyone can do that. israelk of competition and important -- israel and him are.

i think as we get competition and net neutrality concerns fall basicthe question is a title to debate. it is largely driven by two worldviews. competition is not possible. the other is that competition is possible, and we do not need title to. i want to response to an economic argument that has been made here. this goes back to the idea of the virtuous circle. it is absolutely correct. it can also go the other way. the virtuous circle describes a two-sided market will stop the economic literature very consistently holds the same result. it can harm consumers. it can also benefit substantially. prioritization,

we are foreclosing the possibility of certain business and that could benefit consumers. >> can ask you to clarify? there seems to be a lot in the press and i a lot of conversations about title ii. it has been around for 80 years. common carriage in telecommunications has had a lot of things attached to it. layers and layers of regulation. it is going back 80 years. what do they mean by that? why is that not a problem? >> the basic question of title ii is that we do not know. provisions lot of that would by virtue of reclassification automatically applies to the internet ecosystem. there is a process of weaving most of them. there is a forbearance process.

it is not clear. as companies develop new business plans, this is the important transition. it agencies want to develop new plans, they would have to go to the fcc and get frugal through forbearance. that could take 15 months. >> you innovate. innovation by permission. is that right? >> excuse me. one thing that is correct is that there is literature that says a two-sided market can be beneficial. that is right disagree with sarah. embracingheeler is paid prioritization. he is arguing that they are proposing that it should not necessarily be the norm. there is a base level of

service. debate, whether the scope of the rules has to be a predicate before we get into whether we want to be in a certain category. it is hard to say which theory i would jump to until you decide what vision for the internet you would like to have. >> the commission has proposed questions on whether they think paid prioritization is good or not good. nprm did not advocate paid prioritization. the first part of that will necessarily inform the answer to the second part. >> a couple points on title ii. there are a lot of misconceptions. choice policy driven that the fcc has discretion to make.

some advocates talk about if we , it will drive a certain result. they are classifying other lines. they will look closely at how these services are provided to the consumers. it will make a technical termination of how that fits. the supreme court affirmed it on that basis. factual particulars of the service are driving classification. the fcc cannot disregard facts and say they approve or a different outcome. they had a record showing. the functions are not what they were. that might justify a different result. that is not the case. the technologies i've spoken to say that there is nothing fundamentally different about the way isps are structured.

that is one important thing to keep in mind. there is an enormous amount of baggage with title ii. it has historically required terror thing of services and price regulation. it is an intensely regulatory framework. many people feel that it is ill suited to the ecosystem. the fcc has tried to address those concerns. they may be able to waive some of its provisions. experience, that would generate a ton of and certainty. they? would a court upholds it? a lot of that uncertainty is a concern. there is a huge spillover risk. if they look at transmission in internet access and say that transmission would be viewed as a separate regulated service, guess what? everyone else is providing

transmission too. networks andery other providers who have always been providing services on an egg regulated -- unregulated basis. they are all providing transmission together content from servers to isps. there would be on in honesty stabilizing risk. it will be regulated for the first time as a telecom service. many other forms of internet transmission might be regulated. from my standpoint, having watched the debate. debate, ifatched the they want to achieve certain concessions that there are review procedures. they are meant to ensure

appropriate arrangements. we can forge a consensus around that. title ii is something that will never lead to consensus. it will lead to uncertainty and fighting. >> matt has hit on an interesting point. it is one of the things that will be the undercurrent of the debate. where do you want to see uncertainty lie? at&t says that they think there is too much uncertainty with the reasonable standards. i think it would lead to litigation over deals. uncertainty over what kind of arrangements they can do. if isropose a rule that not affiliated, and it doesn't engage in an affiliated way, there should be some sort of as long asill be ok there is a baseline of internet

service. fast we havewe are had 10 years of litigation. it is a debate about where the uncertainty lies. it makes consumers nervous about access to content. providers are nervous that they will have to pay more. they may be forced into relationships when they have isps. they may be foreclosing potential revenue surfaces that services. whered argue that that is it is going to be impossible to get to a consensus about all that. it is the job of the regulator to figure how to bridge those gaps. forbearance, we were supposed to start this five minutes ago. if i get to donovan and allison. two grams a few questions.

does anyone have a question? they will bring a boom mic over to you. it is live. raise your hand. the netflix deal, i heard dealthe netflix to comcast does not touch the internet. it is a private line. it is from netflix network to the comcast network. in terms of paid prioritization, will people be able to do these side deals where they do direct lines bypassing the public internet? that is probably 89 or 90. when chairman wheeler was walking out, someone from the press asked about that question.

he said it does not apply to the netflix deal. >> i agree with that. let me explain. these open internet rules are aimed at governing the connection between internet service providers and consumers. when we talk in that context about paid prioritization, what we're saying is that at&t should not be allowed to cut a deal with netflix. it will speed up the delivery of netflix traffic. that is compared to other services. we will have a debate over whether such an arrangement might be reasonable. the interconnection between networks and netflix directly comcast and between comcast with an intermediary is something that the sec has set it outside of these rules. it is a debate raised on relationships that are scrutinized independent of open internet. there is a lot of activity around that.

the chairman has said that it is not part of a net neutrality proceeding. >> i represent netflix. chairman has proposed that they do not extend the roles, it does ask whether it should do so. -- let'sent for that say you have rules that prevented arrangement where at&t is not able to extract a new charge. and there was a lot they could accomplish. and whether the fcc will agree with that view or not and whether they think it should be a different proceeding. there'll be advocates that say it has to be addressed.

>> i would add that the fact that the net lights comcast arrangement is coming up as a controversy in light of net neutrality is evidence that the rules work. network fromd the unreasonable discrimination. in fact, that discriminatory behavior and pressure points moved to a different point in a network. the worry here is that again, given the highest fee -- the interest, theyg have the ability to not just extract fees from content companies. they can extract fees that are not grounded in market-driven rates. they could charge a toll.

>> i want to respond quickly. i think that is fundamentally wrong to stop there is not one fight that netflix has available. what makes the deal possible is the marketplace where netflix and comcast have separate. there are backbone providers. their content delivery networks. historically, netflix is used all of those routes to transmit traffic. its own economic benefit as cutting out the middleman. it comes out with an economic arrangement. no one made netflix do that. they came up with the idea and they are saving money. i resist the idea that somehow net neutrality had anything to do with that. think about it in common sense. this is an ideal position with merger proceedings ending. they wanted to use the regulatory process to avoid a

they voluntarily went into a commercial arrangement. >> putting on my engineering hat full this is a nice demonstration of the technical architecture of the internet. technologists and engineers will tie you that the internet is not neutral. it is a concept that has a technological meaning. one of the reasons is the design of the network. there is a great deal of influence over how effectively different sources will be handled by the internet. i want to highlight that it is nothing new for netflix or anyone to use a private connection to bypass parts of the public network. that is what level three cost is this model has been. they have a private network that the use to bypass

congestion of the public internet. connect withctly the destination high-speed. but that is not from an engineering perspective. the think matt raises factual question, which will have to be addressed. if those roads are congested in a program is so popular that you have used up all the capacity and the isp says that you will have to pay us to open up another poor to gain the capacity, that is the first question. the second one is, is that rate subject to market or says? are they able to choose a number based on business models. that will be the question on the docket. >> in a nice twist on that, from an antitrust perspective, we focus on the power to set prices. netflix is in a different position. they are in a position -- they

represent such a significant portion of the traffic.

what you would come up with. fair market based and everything else, or they have put there from two are on the scale and favor one company over another when it came to these options? is government kind of skewing it a little better? and so that this is a different thing. an important word is jittery. you see in the open internet there's another supposed will making which is on and on and on . the orders of a bit closer to fruition. i have alison intended to los what happened. the amount of discipline.

then the to the fcc diaz to the and that? >> thanks. on behalf of competitor carriers association we represent over 100 wines carriers windy or sprint and t-mobile to some very small ruler as providers. i think the size of the market shows to from carriers can be shown that an at&t over rise alone controls more customers and all of my members combined with a hundred pounds a. so we, i think, in all solutions of bigamy and was that both of these topics were discussed because both of these have been topics of several hearings on their own sense of when committees. we would ask how did we get your . so looking back, going back to 1981 the fcc mid the presario is is available.

that was divided up in each market between to providers, the of the going to a competitor. in 94 congress broke out in its first duopoly by providing the fcc with optional porgy. this is big. this past winless it, then him. we probably could have a whole session on how spectrum is more than the pay for, but for getting spectrum legislation through an important aspect is that spectrum is a huge pay for. it generates a lot revenue. so we threw the 94 on the bus up the one under 20 mhz a pc a spectrum which brought in new competitors. for example, sprint today as it exists because of the pc as option as well as several of my members. this option the party was expanded in the balanced budget act of 97.

none of these releases of the spectrum act. and then the last major huge specter option was 700 mhz, which was created did tgv switch to a switching from analog and digital tv you're able to free up some prime laments spectrum. moving forward from that point for several years we had discussion of s911 in the senate that jumped opportunities, looking at ways to set up the incentive option, of remarked it cannot. the fcc broadband plan and how you could incentivize broadcasters to relinquish some spectrum more to shares of spectrum to free up more spectrum to fuel the mobile broadband networks the consumers are increasingly using. we talk about that neutrality. congress adopted the spectrum act portion of another big pay for package generally total 12. that was adopted september of

2012. through the lobbying and notice and comment proceeding it was adopted yesterday. there's still some work to do on some of the fine points, but the general framework was updated yesterday, which finds us here without the awful, you know, several trees order to read your at this point wrote with a general sense from the commission meeting yesterday about the direction they're looking to go. >> they did not actually publish the order. they gave a preview. the notice of proposed rulemaking, the publisher will making even though it was 110 pages. >> i would be surprised if we come in at 110 pages. >> a big deal. a lot of stuff in there. but just generally, you know, how does this benefit consumers, you know, at companies, mobil providers?

>> absolutely. i think that the order coming out was great news for pretty much anyone who has ever sat staring at their phone at that loading symbol of doom hoping to connect. this is did news. this is, you know, as tim laid out, the process we have been working on for years now trying to get through the commission. we have all seen tremendous growth in the asset economy and through all kinds mobile services that we are increasingly relying on and depending on. i think that, you know, from our perspective we represent a broad swath of the wireless ecosystem carriers, equipment suppliers, of at developers of folks who are doing innovative work in mobile. for all of our members is was a good moment and a good opportunity to know that there will be spectrum in the pipeline, you know, several years down the road. from our view it was interesting to see canadian know, the

chairman, all of the commissioners command the commission staff really spend a lot of time on this trying to a move this side of ford, and i think that -- i think that having more spectrum in the pipeline even though it will take several years to reclaim from the broadcast of very complicated process, so it is no wonder that we might not seal order for a few days. there are a lot of moving parts, and at the end of the day this is good news for all consumers and wireless is an particularly froebel innovation. >> this takes a long time. well, i'm going to give up my spectrum, give it back to the government. the government will have an option. people will buy it. broadcasters would get compensated, and the people that get the spectrum then build the network on those frequencies. so with this huge process, and i guess the concern was there are very few companies or institutions with the financial

and technical wherewithal and employees to actually do that. capitalize, have the infrastructure. i guess the concern is, should we not have innovation, younger, smaller companies able to get into this game? i guess there was talk about adjusting the rules so that you could have other companies with less capital and where would all get into that game. >> the fact that we are both here praising the order is a strong testament to the work that was done to get this right. a couple of points that will really help innovative companies able to participate in this auction, big one was the geographic size of licenses offered. if you only offer a spectrum piece that covers the entire nation there are very few networks and carriers that can bid for that. week, of course, for small

cellular market areas, 700 in the nation, more granular. the original fcc proposal would ask for economic areas. there are all tied to economic areas. through a compromise proposal we are able to reach a partial economic areas which allow rural carriers to provide service in all markets while still allowing larger carriers to piece together the puzzle pieces to serve a larger footprint where necessary. that was a big step to allow some of the smaller, innovative companies to be able to participate. general threshold issue the getting into the auction room. the other big one was true reserve spectrum, much lobbied and fairly controversial aspect of what the fcc adopted. what happened there is, after a threshold prices reached where first that has all of their funding, sufficient funding to move the broadcasters that have volunteered to participate in this process, then about vendee

on an up to a 30 megahertz of spectrum will be reserved for those that are not dominant carriers to make sure that they are able to gain access to this important spectrum and table the bill not networks. >> senator and several members of the senate, our coach eric with the congressional internet caucus and a letter expressing concern about the government, you know, favoring some companies over others when it comes to the spectrum auction. do you think -- did you know that today you would have -- you would like this order so much? did you know that yesterday or two days before? >> i think it is interesting that we are here together in the same place. we had opposed any type of mechanism that would put the fund on a scale for anyone or prevent anyone from participating in the open auction. three have had a long track record of auctions in this country, and open auctions have

been successful. i think the biggest take away from the end of his survey is that neither two nor my carrier members and everything that they wanted out of it. the end of the day the mayor know, we saw among all of our members some very strong interest in participating in these auctions, and that is critical. we need a very vibrant participation on the wireless site and very strong participation on the broadcast side. i know that we have been watching -- the broadcast as a been watching this process where early to see what the activity will be, what will be at stake here. we were encouraged to see the commission will be spending a lot time over the summer going into the father helped answer the broadcast questions. think that at the end of the day we will have a pretty vibrant auction and broad participation of both nine. >> you mentioned how we got here that the budget act and -- there is a financial -- the american

budget and balanced budget and revenues is a big question about how the options play into our federal coffers. that is a big aspect of this that is financial that you need to raise enough money in the auction to cover money that we have already budgeted. so can you explain that a little bit? >> it is an interesting dynamic play. were spectrum policy is passed as a pay for and on the other end congress is explicitly directing the fcc not to look at revenue as one of the factors. the fcc is directed to look at making sure there is not an excessive concentration of spectrum in the major small-business and rural carriers are able to access beckham. congress realizes that spectrum is valuable, and with a good option structure carriers will be showing of to bid to noon the strong message to broadcasters when carriers ranging from at&t the public service wireless serving to our world peace of

georgia outside of making all came out with statements in the with the rules adopted they're interested in participating. for a broadcaster who is looking at what is coming, is this a good opportunity? when you see hundred plus wireless carriers say i'm in it. i'm going to show up and play, that sends a strong signal that they should take a good hard look at participating. >> so the fcc did not do this with of you to maximize the amount money and make. what'd it was a total failure? >> well, i mean, no one wants it to fail. they now the deficit. to ms. -- raise much revenue.

the room not we haven't seen the details. from what folks have heard so far there are very interested in participating. a great opportunity on the wireless side and up to the broadcasters will see a great economic a paternity. >> you mentioned one of the oversight letters. there were several, enduring another, these are not mutually exclusive. a well structured option can raise significant revenue. if we look at past experience the spectrum blocks of the options that had the largest number of carriers bidding, but in by far the most revenue when you have the very large licenses and other reasons why carriers are not interested in participating. making sure that there is a meaningful opportunity for a carrier that shows up and plays by the rules. as a chance to walk away with

something which you are here today saying that the process in congress has slowed down the commission. the way they went through their rulemaking and come up with the reporting order worked. >> onion, everyone is waiting to see the order. everyone wants to see the option to succeed in see helen goes. it might be premature to take a victory lap until we get you the option process and make sure that everyone is participating in variable to reclaim spectrum. a lasting balance and is now focused on carriers. what is at stake here is all the wireless users and the innovation we're seeing from companies across the country or on the world and making sure that the networks and support at traffic and anticipate what will be coming down the road.

>> atlantises important. all spectrum is not created equal. if you think of reproducing broadcast spectrum think of setting up a rabbit ears in the basement files and being a bully get a signal. this goes longer distances giving it a great coverage and also has great in-building penetration for when you are, for example, in a hearing room. >> mobile broadband on steroids. >> yes. >> we have one or two minutes. go to the audience for question on the incentive options. otherwise i do have kind of a weird question. why is it that the broadcasters got the spectrum for free? a certain kind of public interest law larger macro question, with public interest requirements and obligations. ..

important to look back at how we got here, that it wasn't until that '94, that congress looked and said, we shouldn't be just ol' locating the spectrum to different stakeholders. we should auction this off and have some market forces at play. within a competitive framework to make sure you're able to have multiple competitors-and rather than just turning o