Green Paper on the convergence of the telecommunications, media and information technology sectors, and the implications for Regulation - Towards an information society approach
COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 03. 12. 1997 COM(97) 623 final TOWARDS AN INFORMATION SOCIETY APPROACH (Presented by the Commission) EXECUTIVE SUMMARY There is widespread agreement that convergence is occurring at the technological level. That is to sai that digital technology now allows both traditional and new communication services - whether voice, data, sound or pictures - to be provided over many different networks. Current activity in the market suggests that operators from the sectors affected by convergence are acting on the opportunities provided by technological advances to enhance into new activities. Telecommunications, Media and Information Technology sectors are seeking cross product and cros~-platform development as well as cross-sector share-holding. Examples of new products and services being delivered include: traditional services and to branch out their - Home-banking and home-shopping over the Internet, - Voice over the Internet; - E-mail, data and World Wide Web access over mobile phone networks, and the use of wireless links to homes and businesses to connect them to the fixed telecommunications networks; - Data services over digital broadcasting platforms; - On-line services combined with television via systems such as Web-TV, as well as delivery via digital satellites and cable modems; - Webcasting of news, sports, concerts and of other audiovisual services. Such developments represent concrete examples of an Information Society in Europe. They show its potential to touch the lives of every citizen. They also highlight a significant change traditional the telecommunications and media services. range and diversity of in The implications of these developments are far reaching. Convergence is not just about technology. It is about services and about new ways of doing business. and of interacting with society. The changes described in this Green Paper have the potential to substantially improve the quality of life for Europe's citizens; to better integrate Europe's regions into the heart of the European economy, and to make businesses more effective and competitive on global and national markets. The emergence of new services and the development of existing services are expected to expand the overall information market, providing new routes to the citizen and building on Europe's rich cultural heritage, its potential for innovation and its creative ambitions. The global nature of communications platforms today, in particular, the Internet, are providing a key which will open the door to the further integration of the world economy. This will open opportunities and challenges not only for the European Union, but also for our neighbours in Central and Eastern Europe, the Mediterranean, ii and more broadly, in the developing world. At the same time, the low cost of establishing a presence on the World Wide Web, is making it possible both for businesses of all sizes to develop a regional and global reach, and for consumers to benefit from the wider choice of goods and services on offer. Globalisation will therefore be key theme in future developments, as changes in Europe are mirrored by developments all over the World. If Europe can embrace these changes by creating an environment which supports rather than holds back the process of change we will have created a powerful motor for job creation and growth, increasing consumer choice and promoting cultural diversity. If Europe fails to do so, or fails to do so rapidly enough, there are real risks that our businesses and citizens will be left to travel in the slow lane of an information revolution which is being embraced by businesses, users and by Governments around the World. Governments and policy makers will have a key role in ensuring that such an environment is in place. However, beyond the regulatory framework which is the central focus of this Green Paper, efforts will continue to be needed, as recognised at the recent Jobs Summit, to equip Europe's workforce with the skills which the Information Society requires. Continuing support should be given to research and development activities. Governments, regional and local authorities, as well as the European institutions must lead, by example, by fully embracing the technologies and services which the process of convergence is making possible. The future regulatory environment will be of crucial importance. The European Union has already developed a comprehensive framework for managing the transition in telecommunications from a monopoly to a fully competitive world from 1 January 1998. We have also put in place a framework supporting an internal market for broadcasting. Getting the right regulatory framework must be firmly placed within these existing achievements. At the same time, this Green Paper represents a milestone in allowing the Community to look beyond the 1998 deadline and to assess the implications for the sectors affected by convergence. This Green Paper argues that the development of new services could be hindered by the existence of a range of barriers, including regulatory barriers, at different levels of the market. There are, however, differing views on the adequacy of existing regulatory frameworks to deal with the changing environment. One view is that the development of new products and services is being held back by regulatory uncertainty - that existing rules were defined for a national, analogue. and. mono media environment, but that services increasingly cut across different traditional sectors and geographical boundaries, and that they may be provided over a variety of platforms. This calls into question the underlying rationale beneath regulatory approaches in the different sectors affected by convergence. Proponents of this view would argue that such regulatory uncertainty holds back investment and damages the prospects for the implementation of the Information Society. An alternative view would hold that the specific characteristics of the existing separate sectors will limit the scope for service convergence. It further would contend that the role of the media industry as the bearer of social, cultural and ethical values within our society is independent of the technology relied upon to reach the consumer. This would mean that regulation of economic conditions and that of the iii provision of information services should be separated to ensure efficiency and quality. These matters need to be debated and resolved. Finding solutions will need to take account of the full range of interests in the various sectors affected by convergence. At the same time, the potential for change will be felt in different ways and at different levels (e. g. technology, industry, services and markets). Whilst digitalisation means that convergence is well advanced at the level of technology, this Green Paper does not automatically assume that convergence at one level inevitably leads to the same degree of convergehce at other levels. Equally, there is no assumption that convergence in technologies, industries, services and/or markets will necessarily imply a need for a uniform regulatory environment. This Green Paper responds to the requirement for debate. It is consciously interrogative. It analyses issues, it identifies options and it poses questions for public comment. It does not take positions at this stage nor reach conclusions. In Chapters I and II, the Green Paper analyses the convergence phenomenon - its technological underpinnings, current developments in the market, and their possible impact on the telecommunications, media and information technology sectors. In Chapter Ill, actual and potential barriers are identified which may hold back these technological and market developments. Some of these reflect current market or industrial issues of the sectors affected by convergence, whilst others arise from current regulatory approaches. Some of these issues are already being dealt with in Community in areas of intellectual property, media ownership, electronic commerce and digital signatures) and where this is the case those initiatives are identified. In other cases, these barriers serve as a basis for considering the need, if any, to adapt current regulatory frameworks in the light of the convergence phenomenon. (for example, initiatives, Chapter IV provides a detailed discussion of issues associated with existing and possible future regulatory frameworks or approaches. These issues fall into eight broad areas: • Definitions • Market entry and licensing • Access to networks, to conditional access systems and to content • Access to frequency spectrum • Standards • Pricing • Individual consumer interests. The chapter concludes with a discussion of public interest objectives, options for possible future regulatory models and issues raised at an international level. iv Finally, in Chapter V, a set of principles for the future regulatory policy in the sectors affected by convergence are set out, and possible options for future regulatory approaches are identified as a basis for discussion. The Commission believes that the 5 months public consultation period will allow broad participation and debate around issues which are important for citizens, business and for the further development of the Information Society. Comments can be sent in paper or electronic form, and the debate will be assisted by the creation of a specific web-site on which electronic comments can be accessed. 1 There will also be public hearings during the course of the consultation. On the basis of the comments received, the Commission intends to produce a Communication by June 1998. This Green Paper represents a step on the way to securing the benefits of convergence The June for European social and economic development. Communication, setting out the results of the public consultation, will allow political positions to be taken by the European Parliament, the Council of Ministers, the Economic and Social Committee and the Committee of the Regions, and for clear objectives for future policy to be established. This Green Paper initiates a new phase in the European Union's policy approach to the communications environment. As such it represents a key element of the overall framework put in place to support the development of an Information Society. It builds on the current strengths of the frameworks for telecommunications (launched for media by (established by various Community legislative initiatives). This Green paper builds on these achievements, and offers all interested parties an opportunity to comment on the future shape of regulation, in the post-1998 communications environment, in the sectors affected by convergence. landmark 1987 Green Paper on telecommunication 2 ) and the This first step is intended to pave the way for the development of an appropriate regulatory environment which will facilitate the full achievement of the opportunities offered by the Information Society, in the interests of Europe and its citizens as the 21st century begins. 1 World-wide Web address is http://www. ispo. cec. be/convergencegp. Both written and electronic comments will be made available in paper form in parallel with the publication of the Communication on the results of the consultation, subject to any requests made for confidentiality. 2 COM(87) 290 final v ,. ,,;. :;. '. I. 1. 2. 3. 4. II. 1. 2. 3. 4. Convergence - defining its scope The enabling role of technology Current market developments Summary and questions The social and economic-context Market trends The consumer perspective Summary and questions Ill. Barriers to Convergence 1. 2. 3. IV. 1. 2. 3. 4. 5. v. 1. 2. 3. 4. Existing barriers Potential barriers Question Regulatory 'rjlpl_i~at\qp~', Challenge to existing regulatory approaches Tackling the barriers - The regulatory issues Meeting public· interest objectives Options for a future regulatory model Issues at an international level Principles and options· for theJuture Principles for future regu. latory approaches in the sectors affected by convergence Options for regulatory development · Timetable for future action Conclusions Annex: Existing regulation vi iii 1 8 15 18 33 37 is fuelled by The Information Society is becoming a reality; Its development rapid technological change which is transforming the information industries. The nature and speed of this transformation may pose new challenges to policy-makers. the is (IT) factors One of the most significant the increasing use by different sectors, notably the information telecommunications, media and technology same the of sectors, technologies. Evidence of such convergence has been mounting in recent years with the the emergence of increasing capability of existing networks to carry both telecommunications and broadcasting services. Internet and with the There is broad agreement The phenomenon of convergence is relatively new and a range of different views exist on what its implications are for society and for economic activity. that developments in digital electronics, and software are creating the technological potential for a new approach to the delivery and consumption of information services. There is less agreement on how much these developments will change existing practices and over what time-scales. Some consider that convergence will lead to the complete and rapid tra~sformation of existing information telecommunications, media and technology services in such a way that these currently separate groups of services will merge into one another, substantially blurring the previously clear distinctions between them. Others feel that the specificity of the existing separate sectors will limit the scope for service convergence, and that the media industry has a role as the bearer of social, cultural and ethical values within our society, independent of the technology relied upon to reach the consumer. This would mean that regulation of economic conditions and that of the content of information services should be separated to ensure efficiency and quality. Others believe that, if it does occur, it will evolve over an extended time scale. It is nevertheless clear that the implications of these developments are potentially far reaching. The emergence of new services and the developments of existing services is expected to expand the overall information market. This will provide new opportunities for economic growth and employment. At the same time the new communication services environment will also provide opportunities to enhance the quality of European citizen's lives, by increasing consumer choice, facilitating access to the benefits of the Information Society and promoting cultural diversity. These developments are therefore positive for European economic and social development and should be encouraged. F'ublic policy will need to provide for convergence in order to ensure that the potential opportunities are grasped in a timely fashion. environment supportive a What is needed now is wide ranging and deep debate on the convergence phenomenon and its implica!ions as an to such policy formulation. The objective of this Green Paper is to start such a debate. input in the the debate the following central landscape telecommunications, media This debate needs to be set into context in respect of other important Commission actions in and In particular, information technology sectors. future to is this communications full liberalisation of telecommunications services and infrastructure by 1 January 1998. The process started by the Green Paper should ensure that during the overall review of the effectiveness of the 1998 regulatory package for telecommunications (to take place at the end of 1999), full account can be taken of the impact of convergence on that sector. Furthermore, the Cable Review, carried out light of liberalisation and more specifically as a result of the commitment contained within the Cable Directive3 and the (telecommunications) · Full Competition Directive4 the subject of a separate Commission communication. The review aims to create an open and pro competitive market structure in the provision of telecommunications and cable TV networks which may have a significant impact on the markets affected by convergence. In particular, it will encourage competition and prevent the emergence of new anti-competitive gatekeeper positions or bottlenecks. Vigorous competition in these areas will encourage the development of innovative new services which will benefit consumers in the European Community, and will provide European industry and service providers with the expertise to compete on global markets. the is 3 Commission Directive 95/51/EC, OJ L256, 26. 11. 95 4 Commission Directive 96/19. /EC, OJ L74, 223. 96 vii structure, applicable frameworks basic market the background of ensuring a Against competitive the timeliness of this Green Paper stems from the fact that new markets may develop rapidly, and If that they will be essentially global in nature. the in regulatory individual Member States or, indeed, in Europe are not appropriate to the development of these new markets and even hinder their development, then Europe may find itself at a competitive disadvantage vis-a-vis its more flexible global competitors. restrict consumer participation by limiting choice and weakening consumer confidence in the new services, and for economic have negative consequences growth and employment creation in Europe. This could The Green Paper addresses the nature of the convergence phenomenon, and focuses on the the underlying provision of services and networks over which they are. c. arried. It further deals with the implications for both the shape and substance of regulation which may arise from convergence. Although the Green Paper deals with certain aspects of the regulatory framework future initiatives in this field would be without prejudice to existing on-going work within the Commission or the implementation of existing Community legislation. for service provision, any Indeed, respect recognises take definitive The Green Paper does not regulatory to new positions with that structures. it convergence may lead to less regulation in telecommunications and media sectors, and should not lead to more regulation in areas such as IT. Rather it analyses the convergence phenomenon as evident it identifies issues relating to regulation arising it poses these developments, and from questions in relation to these issues. the market; in All interested parties are invited to contribute to the debate by responding to these questions and by making any submission they wish on the subject. The period of such consultation is set for five months from the date of publication of this Green Paper. It is intended to produce a report on the results of the consultation by June 1998. Submissions may be sent via E-mail, fax or post (4 copies please) to: European Commission, DG XIII A4 Attn. Mr. E. Lalor 200 rue de la Loi, BU31 0/62 B-1049 BRUSSELS Belgium Fax (+32 2) 296 9009 and/or European Commission, DG X C1 Attn. Mr. G. Paulger 200 rue de la Loi, L-102 5/25 B-1049 BRUSSELS Belgium Fax: (+32. 2) 299 9201 and/or E-mail: convergencegp@cec. be Hard copies of all submissions will be made available at the conclusion of the consultation, unless a request for confidentiality is received. A Web site has been opened for the posting of both the Green Paper and submissions received. The web address is: http://www. ispo. cec. belconvergencegp viii Information Society This Green Paper represents a further step in in the realisation of an It examines a key set of policy issues Europe. infrastructure of relating the to telecommunications, media and information technology sectors, for convenience referred to as in much of this the document. 'relevant' sectors broad travel and financial services. The Green Paper does not examine policy issues related to the wider set of services which will make the Information Society a reality - services such as Electronic Commerce, which encompasses a range of activities having the potential to revolutionise sectors as diverse as retailing, The policy issues relating to this wider set of services include is in already well advanced, intellectual property rights, copyright and related rights; media pluralism; privacy and data protection; encryption and digital signatures. These are part of the broader framework which is emerging for new services and activities within the Information Society. They are therefore regarded as outside the scope of the Green Paper and are given only passing reference where relevant to the issues at hand. those where Community action for example, Instead, the Green Paper concentrates on the underlying infrastructure 'which will helps create Information and deliver the services of the Society to customers. It is made up of the systems of components, networks and services associated with the relevant sectors. In all three undergoing are systems sectors, fundamental change, primarily the application of digital technology. This is likely to have consequences for policy and regulation. through those The Paper focuses on the on-line delivery of services, dealing with off-line publishing, for example, only insofar as it represents a potential market for the on-line business. The Green Paper deals with broad future trends and does not attempt to define markets for the purposes of the application of Community competition law. The positions discussed in this Green Paper cannot prejudge the positions the Commission may take in the assessment of pending or future cases under the competition rules. From this perspective, Chapter I describes the convergence phenomenon and the technological developments which underpin It also identifies current developments in the market - it. and how suppliers, service providers and consumers are reacting to them - as indicative of the possible direction of future change. As in any consideration of new markets, the activities of suppliers and service providers give the first indication of how things might develop. Their reactions are tempered by those of consumers, who must accept and embrace the new services before the markets can become a reality. 111ji"~1rI~~r9~-n_~~~",~~!!,at6'9I•·i,~~~,~-~9~~-·:1·•,· ···· The term convergence elJdes precise definition, but it is most commonly expressed as: • • the ability of different network platforms to carry essentially similar kinds of services, or the coming together of consumer devices television and telephone, such. as pers'onal computer. the This latter expression of convergence is one most often cited in the popular press - it is easily understood by consumers and has the added interest of reflecting a wider struggle between computer, telecommunications and broadcasting industries for the control of future markets. this popular Despite image however, any convergence of consumer devices is today much less real than network convergence. Telecom munications operators are already offering audiovisual programming over their networks (albeit on an experimental basis) and have become major players in the provision of Internet infrastructure. access, as well as backbone Broadcasters have provided data services over their networks these services will be enhanced over the next 12-18 months by the prospect of digital transmission of both radio and television, and by the addition of interactivity. for some years and in addition Internet access, Cable operators are providing a range of including voice telecommunications services, telephony in some Member States and are starting to deploy cable modems to offer high speed their traditional business of television programming distribution. Beyond· the provision of services to the public, both audio and video technologies are also starting to be deployed within corporate for 'intranets' as an distributing Such applications are also starting to appear on web sites targeted at prospective customers. 5 additional medium information. real-time to 5 See Webcasting and convergence : Policy implications. to be published - OECD, DSTl/ICCPfflSP(97)6 December 1997 The network platform and the consumer/user two elements of the environment constitute supply or value chain extending from content creation through content packaging, service provision and final delivery to customers (see Fig. 1 ). The value chain is a useful concept for analysing the behaviour of firms and markets in the light of convergence. involve companies operating opportunities offered by market convergence in generally different parts of the value chain, resulting in increased vertical integration. Some of these alliances have met with early difficulties, illustrating the uncertainty of the markets and the risks involved. Policy and Regulation Services and Markets Content & service packaging Content supply Tailoring & · Platform & branding connectivity Delivery Access control Function • l,ndust. Y. c:1lliit~~~s··e1n~ m~fg~rs···. ~·. ·' <·. :: ·~t·. "~ ' ~ ,,,~. :·;; ·;~-' :,·. Fig. 1: The emerging value chain Fig. 2: The stages of convergence Source: Squires Sanders Dempsey LLP and Analysys Ltd. Today, firms tend to be present in one or more elements of the value chain. Some argue that a shift towards convergence will lead many of today's current players to consider extending their activities beyond their core businesses, and argue that this trend is already visible in some recent mergers and acquisitions (see below). be levels (technology, The potential for change as a result of the phenomenon of convergence can be seen at three different industry, services and markets) (see Fig 2) though there can that convergence at one level inevitably leads to the same degree of convergence at other levels, nor that convergence industries, services or markets will necessarily lead to a need for a uniform regulatory environment. technologies, assumption automatic no in Technology convergence, of which the examples cited above are illustrative, is based on the common application of digital technologies to the systems and networks associated with 1. 2 delivery of section demonstrates, is already happening, and continuing advances in technology will further consolidate the process along the different elements of the value chain. services. technological convergence As in seen convergence, Many commentators identify a trend towards alliances, industry mergers and joint ventures which build upon the technical and commercial know-how of the partners in order to exploit existing and new markets. Such alliances, mergers and joint ventures will continue to be subject to scrutiny under the Community competition rules. Many such alliances are 'horizontal', that is, between firms operating in the same part of the value chain. Those aimed at addressing the potential It is also difficult to be precise about the services arising from convergence. Many new services will result from technological progress within given sectors, and may not result from cross sectoral activity at all. Others will be a direct result of cross-fertilisation between sectors, telecommunications for and example. Where there is a suggestion of the latter, the term "convergent services" will be used in this document. Where a more general reference is appropriate, the Paper will simply refer "new services", without term signifying any precise legal definition. broadcasting the to 1. 2Jhe enabli11g role of technology rather it addresses This Green Paper is not primarily concerned with technology; the new business and market phenomena which are being enabled by technological developments, and which are altering traditional provider consumer relationships. An understanding of the nature of these developments can lead to a better appreciation of the potential for change. Digital technologies underpin convergence As already stated, the underlying trend is the common adoption of digital technologies by the relevant sectors. Digital technologies cover a range of disciplines generally associated with the computer and telecommunications industries - digital micro-electronics, software and digital transmission. Applied piecemeal within each of the relevant sectors, these technologies have already demonstrated their greater efficiency, flexibility and cost-effectiveness, and have shown how they can enhance creative potential and promote innovation. Computer technology now plays a key role in content creation and production in both cinema 2 family of standards and broadcasting worlds. The ways in which audio-visual material is produced, delivered and consumed are evolving. Content is becoming "scaleable" so that it can be used in different environments and delivered on different network infrastructures. The basic building block is the the digital MPEG encoding of moving images. 6 Once encoded in this be modified, images may manipulated, or transmitted in the same way as any other digital information. The systems and networks handling such information are of course indifferent to the nature of the source material, be it image, sound or text. Digital the basis of source encoding technological convergence. format, forms thus for is the infrastructure. When applied Digital transmission may be carried over broadcast networks or over terrestrial wired or wireless to the most significant broadcasting networks, impact of digitalisation immediate expansion of capacity, effectively removing a scarcity which has limited growth of the sector since its inception. But processing power and software are also helping generalise consumer devices like the set-top box. Implementing functionality in software helps overcome the product life-cycle problems associated with hardware, reducing market inertia and facilitating innovation. It also gives such devices a level of intelligence which allows broadcasting networks to emulate the switching capabilities normally associated with For example, satellite pay-television operators can through today address conditional access systems, often combined with the terrestrial telecommunications network to provide a 'hybrid' return path for interactive services. individual customers telecommunications. Network technologies for convergence. alternative telecommunications As infra structures become more widespread, high-speed networks based on optical fibres will soon be capable, in combination with modern server technology, of operating cost-effectively in a virtual broadcast mode. 7 The high data rates and spectral efficiency achievable through digital transmission open up the possibility of delivering high-quality audio and video signals over a infrastructures. variety of different network Transmission technologies such as narrow-band MPEG - Motion Picture Experts Group. The family of standards extends from MPEG-1 to MPEG-4, of which MPEG-2 (studio-quality television and multiple CD quality audio channels) is the most widely used. That is, the same content delivered to many consumers, but upon their individual request and not necessarily at the same time. , xDSL9 and ATM 10 will ensure that both ISDN 8 existing and new infrastructures can play a role in carrying the new services. The capabilities of existing networks are also enhanced by the compression techniques implicit in the MPEG limited standards, services transmission previously on sophisticated and more costly wide-band infrastructures. capacity considered to possible networks allowing carry only of capable of traffic ATM is of considerable interest as a multimedia It is a high-speed cell transport technology. transporting relay technology, different telecommunications characteristics (voice, data, video) over the same network, and has been designated by the ITU as the ISDN, its narrow-band successor generation of counterpart. the basis for broadband of about This continuing competition between different technologies can change the fortunes of one approach or another, making it difficult to be prescriptive network architectures. This may be a relatively minor problem given that today's applications and services are becoming increasingly independent of the underlying infrastructure which carries them. tomorrow's Internet technology is leading to platform independence The most relevant example of such platform independence is that of the Internet Protocol (IP). IP has developed into the de facto network Internet, able to route and protocol for the transport all the elements of a multimedia service (text, image, motion video and sound). IP is also used in Intranet products, providing an the by other emergence technologies ISDN - Integrated Services Digital Network. The narrow band version was standardised over the last 30 years by Telecommunications Operators wishil)g to digitise the customer access network. Its long gestation period has caused risks of technical obsolescence which have been (notably data mitigated suitable compression) and applications (notably Internet access). xDSL - x-Digital Subscriber Loop whereas x refers to These are the technologies existing telecommunications network copper-pair cable for for high-speed data Asymmetric) the runs downstream direction and HDSL (H for High-speed) at 6Mbps. These are now being superseded by higher-speed technologies. transmission. ADSL typically at 1. 5Mbps the moment. exploit technology of (A in which the of 10 ATM - Asynchronous Transfer Mode, a high-speed switching technology operating at a basic transport level. This contrasts with higher-level application protocols such as IP (Internet Protocol) which may ride on top of transport protocols such as ATM. 3 infrastructure for multimedia applications within a company or other closed user group. digital analogue transmission. compression rather than existing a from from largely academic- The Internet can best be described as a network of networks interconnected on an open basis using IP, usually running over transmission links telecommunications operators leased It has evolved very rapidly over the past (TOs ). decade and government-sponsored network with a backbone capacity of 56kbit/s in 1986, increased to 45 Mbit/s in 1993, and to 155Mbit/s in 1996. This huge change in the capacity of the Internet's infrastructure has been the remarkable growth in the number of people using the Internet and the range of applications and software tools developed for it. in response to open, approach The to non-proprietary standards for the Internet has made it easy for companies to take advantage of, and build on, the advances made by others in the industry. For example, many would argue that the rapid development of the capabilities of the World Wide Web (WWW) has been enhanced by the open approach to browser development taken by vendors such as Netscape, Microsoft and Sun. Internet will be further enhanced as a The transport by vehicle the for multimedia development of several improved or new protocols which Internet service providers expect to implement within the next three years. This brief review of the salient technological developments is not meant to be exhaustive, but to illustrate the role of technology as the motor of change. Technology is developing constantly; its application to innovative services and the bringing of those services to market promise even further dramatic change in the future. 1:;~,:'~y,rr~~nfrn~-r~~ra~v~1C?em~rlt!':?··,·- sign ificant changes are now being realised through the application of new technology to the individual sectors, and these are examined in turn. Such changes are not in themselves evidence of convergence, but as suggested earlier, the commonality of technology applied could provide a basis for that convergence to develop. Digital television and digital audio broadcasting services are changing today's audiovisual landscape In the early 1990s it became apparent that digital technology could be efficiently and cost effectively used for the delivery of television and audio signals. Of particular interest was the possibility of delivering many more channels over the same infrastructure (cable TV, satellite terrestrial spectrum) by using transponders, the background of a In the television area, building on the work of the Digital Video Broadcasting (DVB) project, 11 and against regulatory framework provided by the Television without Frontiers Directive, the Television Standards Directive and other measures, 12 digital TV services have recently been launched in Europe. the world are also Other countries around making use of DVB technology and European standards. The first commercial services started in France in April 1996. Other digital services rapidly followed and at the time of writing, more than 200 digital TV channels are targeted at viewers in France, Germany, Spain, Italy, the Benelux and the Nordic area. Of the order of one million digital receivers are believed to be currently in operation in Europe - figures which could double by the end of 1998. Although it is early days in the development of this market a number of interesting phenomena - which are either new to TV or significant developments of past practice - are appearing as digital compression is cost-effectively reducing capacity constraints: - Programme with thematic bouquets and thematic channels - Broadcasting companies are marketing their digital services in the form of 'bouquets' of programme channels. The 'generalist' TV "bouquet" complements channels channels concentrating on news, sports, movies etc. offering viewers greater choice and coverage of areas of specific interest to them. Already evident thematic channels are set to increase in number and to achieve ever finer levels of segmentation with digital technology. Such channels will need to seek wider audiences for economic viability, and pan-European operation could be a way of securing them. the analogue era, in - Near Video-on-demand - The. availability of substantial at transmission reasonable prices will soon make "near video-on-demand" (NVOD) services possible. capacity 11 The DVB than 200 is a body comprising more organisations from 30 countries in Europe and around It includes broadcasters (both public and the world. private), manufacturers (of consumer and professional equipment), operators (of satellite, cable and terrestrial networks) and regulators. It has defined a complete set of specifications for digital TV broadcasting over including: cable, satellite, terrestrial and microwave radio distribution systems. These specifications have since been converted into ETSI standards. 12 The 1989 Television without Frontiers Directive (89/552/EEC) was recently revised and updated as Directive 97/36/EC. The Television Standards Directive (95/47/EC) was adopted in October 1995. 4 Example: With 60 satellite channels, ten 90- minute films could be broadcast simultaneously, each one starting at 15-minute intervals. - Pay-per-view - Similarly, it is possible to market specific events or movie-showings on an individual subscription basis. Such pay per-view services have been provided in the UK on analogue channels (for boxing championships) and Spain in digital format (for football league matches). The greater capacity of digital the simultaneous broadcast of several such events (the most obvious case being matches played in a football league), giving viewers the choice of access to a particular event on a 'pay-per-view' basis. television allows to from classic the potential These phenomena, which constitute a significant schedule-based departure broadcasting, have improve consumer choice. In addition, and because the "digital channel" is inherentJy more flexible than an analogue channel, it can deliver other services in the form of data, graphics, moving pictures or combinations of these. Digital television shares these characteristics with digital audio broadcasting, which also offers "Multimedia listeners near CD quality sound. data broadcasting" already provides the for downloading of computer programmes including video games, data files and direct access to the Internet from the TV set or network computer. Example: Hughes Olfretti Telecom launched the DirecPC satellite Internet access service in 1996. It connects some 2000 sites across Europe to the Internet at speeds up to 20 times greater than conventional modems. for band being tickets radio offers exciting The arrival of digital possibilities for the combination of radio and images, or links to Internet sites marketing CDs broadcast13 or. Broadcasters such as CNN and the BBC are starting to make parts of their broadcast content available on the Internet, extending their normal geographical ·reach, whilst a new breed of webcasters is emerging to broadcast particular live events, such as sports coverage, concerts, major events, etc. Telecommunications liberalisation is widening choice and lowering prices the In less than ten years, the European telecom munications sector has experienced a radical transformation from one characterised by rigid and inefficient monopoly to a sector facing full and vigorous competition, with total liberalisation of services and infrastructure due to take place in most Member States from January 1998. This transformation owes its beginnings to an earlier phase of convergence - that between telecommunications and over a decade ago. Technological convergence rapidly gave rise to market convergence, and "value-added" services - innovative services which borrowed concepts from both sectors, and which allowed businesses to extend the power of computing beyond their immediate locations. the geographical confines of computing in part to - The regulatory traditions of the telecommunic ations sector contrasted sharply with the free the computing market environment in which industry had developed, and their coming together meant that some rationalisation of these regulatory philosophies would be different needed if the new services were to flourish. The 1987 Green Paper 14 concluded that greater harmonisation and gradual market opening in the most telecommunications would provide fertile environment for such growth. The first measures were initiated in 1988 and culminated in the introduction of full liberalisation of the telecommunications sector by 1 January 199815 This step-by-step process of telecommunic ations liberalisation and global market opening is already bringing substantial benefits to many businesses and consumers, with lower prices, improved customer service and innovative service offerings. Even so, the overall level and structure of prices continue to have a major impact on the take-up of new services. The mobile particularly dynamic. communications business is in Example: Close Scandinavia have a mobile phone and there are more than 3 7 million mobile telephony users in Europe. three people to one in Example: Coverage of the recentlrish elections was available to Irish citizens all over the world via a webcast site (l-vww. itv. com) innovations Other field include Widescreen TV using 16:9 format, the technical possibility of higher definition pictures. the broadcasting in 13 Radio with Images, Financial Times, 11 November 1997 5 Increasingly, such mobile systems are adding a multimedia component. One aspect of market the convergence occurring within 14 Towards a dynamic European economy, Green Paper for equipment, the development of a common market services on telecommunications COM(87)290, Brussels, 30. 06. 1987 15 Commission Directive 96/19/EC and the body of legislation adopted by the European Parliament and transition periods are Council. Certain additional provided for some Member States. and telecommunications sector is that between fixed and mobile telephony, as in certain Member States and amongst certain. groups of the population (e. g. students, small businesses), mobile phones are replacing fixed connections. However, this practical example of how fixed and mobile networks are converging is only part of a wider trend towards the full integration of wired and wireless technologies, which is the key goal of the next generation of digital mobile communications systems. This will offer users a platform on which to receive a seamless set of voice, data, multimedia and audio-visual services wherever they are. This vision, which has important implications for all the sectors affected by convergence was first recognised in the 1994 Mobile Green Paper16 and has most recently been returned to in the Commission's two Communications. on Universal Mobile Communications 17 • The Internet is bringing new services to business and the public at large It is, however, in a third sector, the Internet, that changes have been the most radical. The Internet is both the symbolic and prime driver of convergence. It is a vehicle for the delivery to users of both existing services (electronic mail, video, sound, voice telephony, for example) and completely new services (e. g. World-wide Web). It has rapidly evolved from a governmenU academic network to a powerful communication and trading platform. Characterised by an unprecedented growth rate (doubling its number of users every year), the Internet has started to influence a number of economic sectors, with the emergence of a fast-growing electronic commerce economy. trading The Internet is displacing traditional computer networks, and showing the first signs of how it may provide a platform which over time replaces traditional methods of trading. For example, traditional business-to-business on closed corporate networks is giving way to multidimensional commerce on global open networks. The Internet is also providing an alternative means core telecommunications business activity (even if differences in quality still distinguish the two Internet services) telephony, without in some cases either party needing to have a computer. The Internet is also a significant platform for broadcasting services. the delivery of of offering through the 16 Green Paper on a common approach in the field of mobile and personal communications in the European Union, COM(94) 145 final, 27. 4. 94 Example: Today, there are 650 Webcast radio stations and 2 70 "Real-Video" enabled sites on the Internet, 1a offering video material of cun·ent European and US broadcasters. New Internet techniques, such as multicasting, offers the possibility of delivering audio and visual content to up to 50,000 users at any one time instead of 50,000 individual messages, narrowing the borderlines between previously separate sectors. Many consider that Internet will become a major conduit for video and sound (especially music) distribution. the Internet as a platform has However, traditional developed from differently broadcasting and telecommunications. It has been essentially user-driven, with user-owned equipment (the routers performing central rather than peripheral network functions) and users · themselves continuing to generate a substantial part of the content. The decentralised nature of Internet is seen by many as the single main reason for its success, and as a lesson for the converging environment. A characteristic of the Internet which is indicative of convergence is that it functions simultaneously as a medium for communication. publishing Unlike and traditional media, the Internet simultaneously supports a variety of communication modes, both transactional and broadcast in nature: one to-one, one-to-many, many-to-many. An Internet user may "speak" or "listen" interchangeably, interweaving public communication (the content of which is - at least in the case of broadcast traditionally regulated) with private content - communication (traditionally unregulated). This constant shift to private communication modes, each regulated through very different principles, constitutes one of the main challenges of Internet regulation. from publishing Mergers and Alliances are reshaping existing industries The on-going process of convergence, the opening up of the telecommunications sector to full competition both in Europe and globally, and the rapid growth of the Internet and on-line services, is leading to the creation of new market structures and new roles for market players. In 1996 more than 15% of the total value of world wide mergers and acquisitions (US $1 trillion) was generated by activity in what can broadly be termed communication industries. Such ventures represent a wide range of transactions, from horizontal alliances which share risk and match complimentary skills, to vertical integration as players in one market information and 17 COM(97) 217, 29. 5. 97 and COM(97) 513, 15. 10. 97 18 www. timecast. com cited in OECD report op cit note 5. 6 to for seek leverage segment technological convergence, expand into other higher value segments or develop scale economies. One study being carried out the European Commission interpreted the motivations behind some the main types of transactions (not all successfully concluded), shown in Tables 1 and 2 below. 19 Although they do not necessarily reflect the views of the Commission and cannot be considered as an assessment under the Community are nonetheless useful illustrative pointers to the evolving market situation. competition rules, they Table 1: Horizontal Mergers and Alliances Rationale Examples Increasing market power/gaining minimum efficient scale High cost of new {digital) technologies Vebacom - Urbana Systemtechnik, Cable and Wireless Communications, Demon - Cityscape Canal Plus - Nethold Uncertain demand for new services Multimediabetriebsgesellschaft (Kirch, Bertelsmann, etc. ) Internationalisation BT-MCI, Global One, UUNet- Unipalm Pipex Opportunities arising from regulatory reform MFS/Worldcom, Telenet Flanders, NYNEX/Bell Atlantic Table 2: Vertical Mergers and Alliances Rationale Examples Uncertainty of demand Hughes Olivetti Telecom (DirecPC), @Home Market positioning and access to new skills Bertelsmann - AOL, BBC WorldWide - ICL, STET - IBM Gaining control of channels to the customer Moving into higher margin areas of the value chain Stave off competition from companies in related markets BT - BSkyB, Disney - ABC - Capital Cities Microsoft Network - NBC (MSNBC Internet new channel) US West - Time Warner, Oracle - Sun - Netscape (Network Computer) The same Study concludes that two trends can be identified in such activity. One towards consolidation of current activities and the other towards diversification to new opportunities opened up by liberalisation of EU and World markets, and with a view to the opportunities offered by convergence. Vertical merger activity is seen as more significant indicator of a change in industry structures in response to the convergence phenomenon. response in Underlying that analysis is the reality that few, if any of today's market players will have the skills or resources to straddle the whole of the value chain within a converged environment, so that the emergence of major players in the sectors affected by convergence will inevitably rely on partnering to varying degrees. In such a context, the Competition rules will continue to play a key role in assessing new ventures as the emerge. Competition policy: the need to keep markets competitive In the past, the Commission has applied the Community competition rules to convergence cases, 20 including some of the cases mentioned in the table above. Global One and BT/MCI are examples of the cases where the Commission, following changes to the arrangements to protect competition, has been able to approve under the competition rules agreements considered likely to promote technical progress. However, the Commission has taken action against other arrangements which unduly foreclosed markets and which were incompatible with therefore Community competition rules. Notable amongst these were the MSG and Nordic Satellite Distribution operations, where the combination of market players in the converging markets and the market positions which they were likely to hold in the future would have led to a foreclosure of the market on a lasting basis. This would have, in turn, been likely to result into excessive pricing as well as a loss of innovation and product variety, to the detriment of the fast development of these markets in Europe. As this could not be remedied with changes to the arrangements, therefore the agreements were prohibited. · In the future, the Commission will continue to favour agreements which promote technical progress, and which promote market entry. On the other hand, the Commission will not allow agreements or mergers which have the effect of foreclosing markets or strengthening or creating dominant positions, or giving the parties the possibility of denying access to new entrants. The Commission will also prevent market actors who enjoy an existing dominant position from abusing that dominant position, such as it did in the case of the Microsoft case, or liberalised telecommunications operators on markets. in 19 Study on Adapting the EU Regulatory Framework to the Developing Multimedia Environment, Squire, Sanders & Dempsey LLP and Analysys Ltd. , to be published in December 1997. 2° For further details, refer to the European Commission's Annual Report on Competition for 1994, 1995 and 1996. 7 ma~~r~·radoar,,. ,,. ,JY~. Q. ,. ,!!,,,. ,. _ ___. , of the to define technologies convergence the This chapter has attempted between phenomenon telecommunications, media and IT sectors. It of enabling described convergence and its initial manifestation in the network platforms associated with the on-line distribution and delivery of services. The chapter concluded that while there is general technological agreement on convergence, there is less certainty regarding the likelihood and/or timing of a full convergence of the services and markets. the notion of (A) Whilst convergence is occurring at the technology level, to what extent and at what speed is this happening at the industry, service and market levels? (B) Are the effects of convergence already being felt in the business world and in our everyday lives, and if so, in what way? 8 Following a discussion of the social and economic context for convergence, Chapter II ~xamines market trends in order to assess the potential impact of convergence on the relevant concludes with a sectors. The consumers may be discussion of how responding to these developments. chapter ~. ~a~~r~~!r,:Q. §r~u~n. iI~:;!£9n9Jn1~['. ~?ht~#···. Social aspects The concept of the Information Society provides the political background for convergence. The Information Society permeates current thinking on is future economic development and impact on predicted society and employment as industrial revolution did a century before. to have an equivalent the to this context, Within the new services and activities made possible through the range of technological and market trends identified above have the potential to impact every aspect of our lives, from our homes to our work place; from the way we do business to the way we learn; from access to healthcare to the management and the way delivery of public services and in a democratic society. citizens participate Today people are already using telephone based services in some Member States in areas insurance and ordering of such as banking, computers or theatre tickets. is only a It relatively short step before the delivery of such services becomes common place over the television or via a PC. A key issue in that context is ensuring that users are familiar with and comfortable using new technologies and the services, whilst as will be seen in regulatory framework has a role ensuring new in environment. later to play the confidence user and societal A range of Community initiatives have attempted to give a concrete form to the impact of the social the Information Society following the landmark White Paper in 1993,21 and the Bangemann Report published the following year. 22 Similar high profile initiatives were undertaken at the same time in the USA and other parts of the world, and implications of 21 White Paper on growth, competitiveness, and employment - The challenges and ways forward into the 21st century, COM(93) 700, Brussels, 5 December 1993 society, global Recommendations of the Bangemann Group to the European Council, 26 May 1994 information and the 22 Europe an international dimension was added in 1995 when the G7 countries met in Brussels to devise a global strategy for developing towards the Information society. Community initiatives for the Information Society the Commission Information Society26 Broad social aspects are being addressed by a number of initiatives in which the Commission is involved. These include the Information Society Forum, 23 the High-Level Group of Experts on the social aspects of the Information Society, 24 the Commission White Paper on Teaching and Learning, 25 the Green Paper on Living and , and a the Working in reconvened Bangemann Group reviewing progress since its 1994 report. At an early stage, the importance of convergence for the European audiovisual programme industry, a prime vector of social and cultural values. 27 Two recent Commission documents, one a Green Paper and the other a Communication, addressed issues of illegal content and content which could be damaging European Parliament29 and the Council 30 have been active recently-adopted in Communication describes how the Information Society must transcend a wide range of EU policies. 31 to minors. 26 recognised area, The and this a Report. The first phase covered the regulatory framework, the network, services and content aspects, and the social and cultural issues. 33 The second phase, an outcome of the Corfu summit, 34 is based on a updated set of priorities: the business environment, education and training, protection of the public interest, and the international dimension. 35 • Impact on economic and industrial competitiveness The convergence debate which this Green Paper raises, is much more than an academic or theoretical exercise. The ability of the European Community to use convergence, whilst tailoring it to the European version of an Information Society, will be at the heart of growth, competitiveness and job creation in the years to come. The danger is that if Europe fails to take advantage of the opportunities provided by convergence, it could be left behind as other major trading blocks reap the benefits of a more positive approach. The socio-economic and business implications of the Information Society are currently being studied in different fora at a Community level. 36 The impact of the new services resulting from convergence will be felt in the economy as a whole as well as relevant sectors themselves. the in initiatives now under way The many in furtherance of the Information Society are being pulled together in a Rolling Action Plan 32 which the secon'd constitutes phase the Bangemann Commission's response the of to 23 First Annual report of the Information Society Forum to the European Commission, Networks for people and their Communities - June 1996 24 Building the European Information society for us all, Final report of the High Level Experts Group, April 1997. 25 Leaming in the Information Society - Action Plan for a European Education Initiative, (96) 471, 2October1996 26 Green Paper on Living and Working in the Information Society: People First, COM(96) 389, 22 July, 1996 21 Green Paper on Strategy Options to Strengthen the European Programme Industries in the context of the Audiovisual Policy of the European Union COM(94)96 of 6 April 1994. 28 See Green Paper on the protection of minors and human dignity in audiovisual and information services, COM (96) 483, 16. 10. 97 and Communication on the illegal and Harmful content on the Internet, COM(96) 487, 16. 10. 97. 29 The Herman Report, 19 September 1996 3° Council Resolution on New political priorities regarding information society, of 21 Nov. 96 OJ C386, the 12. 12. 96, p. 1 31 Commission Communication on The Implications of the for European Union Policies Information Society Preparing the next steps, COM(96)395, 24. 07. 1996 32 Commission Communication on Europe at the Forefront of the Global Information Society: Rolling Action Plan, COM(96)607 final, 27. 11. 1996. The most significant example is the emerging field of electronic commerce. It includes both indirect (electronic ordering of tangible goods), and direct (on-line ordering and delivery of services) forms. Electronic commerce makes it possible to trade at low cost across regions and national frontiers. A recent Commission Communication pointed to the potential opportunities provided by Electronic Commerce for consumers and for businesses in Europe, particularly for SMEs. 37 It estimated that electronic commerce revenues, both direct and indirect, are set to increase to 200 ·billion ECU world-wide by the year 2000: It arso highlighted 33 Europe's way to the information society: An Action Plan COM (94) 347, 19 July 1994 34 Communication of the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions. on The Information Society: From Corfu to Dublin -The new emerging priorities, :OM(96)395, 24 July 1996. 35 Commission Communication "The implications of the - information society for European Union policies Preparing the next steps". COM (96) 395, 24 July 1986 36 See for example, Action Plan for employment in Europe: A confidence pact, CSE/1262/96, OJ C56, 24 February 1997 and Cohesion and Information Society, COM(97)7,22 January 1997. the 37 Commission Communication, A European Initiative in Electronic Commerce, COM(97) 157, April 1997 9 creation of a the regulatory framework on both EU and global levels as a prerequisite for further development. favourable With regard to the impact of convergence on its component sectors, one study indicated that revenues in the relevant sectors could suffer by some 40% by the year 2005 if the market does not develop full advantage of convergence. 38 To give some idea of scale, Fig. 3 shows that the relevant sectors represented some ECU 175P billion in 1996, of which ECU 508 billion was attributed to EU markets. 39 in a direction which takes Fig. 3: 1996 distribution of global revenues (ECU 1750 billion) for the relevant sectors (Source !DA TE) Expansion of the market for services and the means of their distribution seems likely to have a knock-on effect in content production, though often as a result of regulatory obligations placed on particular broadcasters. There is evidence, for example, that the success of Canal+ pay television in France has had a positive impact on in the French cinema dependent content producers in the UK were given a boost when Channel 4 arrived on the scene. Likewise, industry. impact on the Future developments may fulfilment of the public service mission. First, as the pay-TV market matures, operators may need to increase their investment in local content to maintain quality and product differentiation. For example, British satellite pay-TV operator, BSkyB, is now a major investor in the UK film 38 See KPMG Report, Public Policy Issues arising from Telecommunications and Audiovisual Convergence, September 1996 39 Source: Market developments in telecommunications and integrated communications services_ to the year 2010, Study by IDATE for the Commission, 12/97 is acqumng rights industry, and Canal+ in French cinema libraries. Secondly, competition in conveyance (terrestrial, cable, satellite, etc. ) is likely, particularly in a digital environment, to shift the bottleneck from delivery to content, with a resulting hike in the prices for content rights. Employment effects to to greater diversity investment and The signals this sends to the marketplace should hence lead employment in the content business to satisfy the increasing demand. Europe is well-placed to meet this challenge by harnessing its creative capacities cultural the of roof. However, EU its environments under production is not increasing rapidly and the EU therefore the to competitiveness of its companies so that the public can get the most out of the opportunities offered by the new media, and so that market growth can be transformed into jobs to bring the number of people employed in the industry in Europe (1. 8 million) closer to the level in the United States (2. 6 million). strengthen needs in impact on employment Quite apart from the multiplier effects generated by convergence in its role as an enabler of the Information Society, there is likely to be a direct and positive the relevant sectors. Expansion of the market and for new content and the attendant demand services will generate a need for people with the requisite creative talents. This will be felt both in large companies seeking to reorient themselves towards the new markets, and in SMEs seeking to exploit niche markets. SMEs will combine their use of standardised digital platforms such as the Internet with software skills to develop applications and services aimed at both professional users and residential consumers. take full advantage of The technological convergence by integrating the diverse components of telecommunications, media and IT sectors to produce innovative services. task will be to Staff retraining will be an important requirement, Gearing up for the new markets will need people with the right mix of skills, for which specialised training will be required. The Commission has launched a number of initiatives in the field of education and training, notably the action plan, Information Teaching and Learning Society, 40 as well as certain activities in the context of the Leonardo (training) and Socrates (education) programmes. the in 40 Op. cit Note 25 10 Research and Development through European support for co-operative research and development activity, the ACTS (Advanced Communications Technologies and Services), Esprit and Telematics programmes, has played an important part in many of the technical developments which has made the It has convergence phenomenon possible. IT, contributed industries. telecommunications and software the Much of development standards subsequently adopted by industry and formalised by European standardisation bodies, the development of and has contributed to technical supporting electronic commerce. the strength of European technical the this work has platforms and supported tools of to have Programme Research and Technological Development (RTD) Programme activities during the Fourth Framework equally encouraged greater participation by SMEs, who can benefit, for example, from systems and services which stimulate tele-working. A specific example of an integrated approach to systems and services of benefit the Integrated Applications for Digital Sites. 41 Here, on-line and off-line multimedia applications supply from central/local government - in transport management, tele local medicine, education and citizens, businesses and other organisations in a cost-effective, user-friendly manner. integrated services to SM Es training - to is Following the adoption of the proposal for the Fifth Framework Programme in April 1997, the Commission has reviewed research activities in IT, telecommunications and telematics with a view to grouping them into a single integrated In the context of convergence, this programme. includes R&D activity in the area of multimedia and audiovisual content. 42 11. 2' Marlcef'fr~ffd_s _ This section looks at market trends without however providing an assessment under the Community competition rules. The activities and investment strategies of market players in response to new developments are now becoming evident, and give a good indication of 41 Subject of a Call for proposals in 1997 under the Telematics Applications Programme. Digital sites are physical sites in geographical areas such rural areas, small towns, cities or regions, in which local needs of citizens and businesses can be met through IT and telecommunications multimedia applications. 42 See COM(97)553final of 5. 11. 97, Fifth Framework Programme. Research and Technological Development (1998-2002), Commission Working Paper on the Specific Programmes: Starting points for discussion. 11 how those players perceive future trends. One indicator of convergence is the willingness of market players the possibilities to exploit provided by new platforms, in particularly, the Internet to expand their activities beyond the confines of their traditional core markets in both a geographical and product sense. Webcasting highlighted above is one such example. The entry of telecoms operators into the area of Internet service provision and Internet voice telephony provision is arguably another. Such services are new only in the sense that they represent an excursion into new areas for the provider in question. But some are new to all comers. New services The flexibility of digital information is creating the possibility for more and enriched conventional services, (such as digital television and radio and better quality mobile communications), as well as a whole range of new services and applications. These new services are as varied as electronic newspapers. on-line supermarkets and catalogues, home-banking, and the use of multimedia web internal sites communications, and as a key tool for business. both for Examples: • Broadcasters who are branching into new areas, such as data broadcast, Internet webcasting and telecommunications transport and services; • Telecommunications operators who are providing audiovisual services, such as video-on-demand and cable television. • Internet service providers· who are starting to distribute audiovisual material, and Internet telephony access providers supplying voice capability. for fertile ground Despite current limitations a number of applications are closing the gap between smart television and video Internet. The area where these two areas converge curref!tlY constitutes the most innovation and entrepreneurial activity - as well as for creation Innovative of entirely new types of content. forms of graphic-rich "Internet channels" are building on the creativity of previously separate metiers of video production, computer imaging and information management. Similarly, high end networked video-games are building devoted constituencies of players across national borders. In a seamless and scaleable digital environment, innovative hybrid multimedia applications are appearing - such as digital television 'infomercials' with Internet response mechanisms (for immediate ordering), CD-ROM catalogues with Internet connections (for content or price updates) and commercial Web sites with local CD-ROM extensions (for memory-intensive multimedia demonstrations). In addition, At the delivery end of the value chain, players are moving into what are for them new areas of activity. New features are being added to services on all networks. the services themselves are changing by combining the features of hitherto separate services. Thus television programmes are 'data-enhanced' by the parallel availability of text and graphics. One pilot supplements broadcasts of horse-races with supporting text and facilities for on-line betting. The same possibilities are offered by digital radio. example, project, for New players As convergence enables incumbent players in the telecommunications broadcasting sectors to expand their roles, it also marks the entry of powerful new players from publishing and IT industries. For information providers, such as financial publishers, database operators and information services, the Internet constitutes a crucial extension of their traditional know-how, and an recycling and "repurposing" rich stores of information. ideal means of television Similarly, IT companies are exercising significant influence on shaping the new services market in Europe - as they move towards generalised on line distribution of software and multimedia content, make substantial investments into cable and television business, and act as integrators of advanced Europe. the exponential growth of Underpinned by computing power, kept responsive to change by shortened product life-cycles, used to operating fiercely competitive environment, and in a cumbersome historically regulation, the contribution and potential of thP. IT industry to first drive and then benefit from convergence should not be underestimated. unhampered trials by in Fig. 4: Locations of the Major Players in the Value Chain and Relationships between them TO Broadcaster Electronic publisher Internet service provider Content creator Software developer Content creation Packaging Service Provision - Infrastructure provision Terminal vending - - Core strength Existing relationship or contractual link IE~#I Partial competence _____. Potential contractual link to another player (Source: Squires, Sanders Dempsey LLP and Analysys Ltd. ) New market structures The factors. The significant merger, acquisition and alliance (M&A) activity described I are in Chapter range of commercial and motivated by a strategic towards trend convergence would be one of these, albeit an important one. Some argue that new market structures reflect a substantial shift in the value chain, with value migrating from simple delivery to the production and packaging of content or the offer of on-line of services and transactions. Liberalisation and competition, coupled with digitisation and significant increases in network of both broadcasting and capacity telecommunications networks, is rendering the transmission and delivery of services a commodity item, converting it into a low-margin high-volume business. Firms currently operating in lower parts of the value chain are therefore seeking to increase volume on their core activity, through horizontal alliances or organic growth into new geographical markets. the At the same time, they are moving up the value chain to higher margin activities through vertical concentration. Telef6nica's purchase of Antena3 TV in Spain, the STET group's creation of· 12 Stream in Italy and Microsoft's acquisition of cable television operator Comcast in the USA are all examples of companies moving across sectors as much for strategic as for commercial, profit-motivated reasons. Fig. 4 maps out these strategies by type of market player and by element of the value chain brought into play. It also types of commercial relationship which are emerging between It should be noted, however, different actors. that the representation is schematic and, that neat distinctions between content creation, packaging and service provision are sometimes difficult to establish. indicates the the filling on-line industries pioneering some of The situation is reinforced by the emergence of the gaps between new in start-up adjacent sectors; computer companies networking services a decade ago have grown into multi-billion today. dollar CompuServe and American On-line are two cases in point. The recent linking of those two businesses together with Worldcom is a further example of fluidity of current market structures. groups the 11~$T~. ~'. ,~eh~ilrr1~f per,sP,~~tiv~ The nature and potential growth of market demand for the new services is the greatest uncertainty facing market players. The signals from the marketplace are conflicting. Supply side indicators, in terms of M&A activity and investment in new service development, give a positive impression of market potential. On the other hand, although growth rates in Internet services are impressive, only around 8% of European citizens are using the Internet at work, This represents a and around 4% at home. small proportion of the total consumption of audiovisual material, in which TV set penetration exceeds that of the telephone. Moreover, many family the passive consumption of view the mainstay of television viewing to be audiovisual consumption foreseeable future. 43 the for in However, there are some indications of potential change the patterns of consumption of services and in ttie home environment. Some of these are taken from market developments in North America, where the use of PCs in homes is currently much greater in Europe. Parallels drawn from the US market will only be valid therefore to the extent that a similar level of PC use can be achieved in Europe. than 43 See Economic Implications of New Communication Technologies on the audio visual markets. Study carried out for the European Commission by Norcontel (Ireland) Ltd. , March 1997. The changing patterns of consumption Consumers are likely to use new products and services offered through convergence only insofar as those services are useful to them. The take-off of new services cannot therefore be simply supply-driven, but must take account of the consumer demand and, in particular viewpoint. in consumption This is reflected trends which are beginning to show the first signs of a convergence in the home: - in 1998, for the first time more personal computers will be sold in the world than television sets; this must of course be set against the very high penetration of TVs in the home, and the fact that PCs are sold to both businesses and homes; in 1995, Americans spent less than half of all screen-viewing time in front of computers; recent US audience measurements indicate that Web users already consume 59% less it is television than average viewers and estimated that the TV set's share of screen time will be half that of the personal computer in 2005; on the other hand, audience figures for 1995/96 show that the average daily increased by 4 viewing minutes, compared to a decrease of 2 minutes in the US; in Europe time - into displaced by activities research increased personal computer usage shows that watching television loses out rather than reading books and magazines, or playing console video games. According to Price Waterhouse, young adults in the US between 18 and 35 who used to spend 4 hours a day watching TV now spend one of those hours 'surfing the net'. leisure terms of available In time and expenditure, the youth segments are already opting for interactivity. Video games alone represent nearly 20% of under sixteen year olds' total media consumption in som·e markets, according to Arthur Andersen. 44 Changing home environment for consumption A key factor in the take up of new services will be the penetration of PCs in the home, and Internet capable particularly multimedia and PCs. Here whilst PC penetration levels of up to 30% are common in most Member States, penetration of multimedia PCs is considerably the home as lower and mentioned above is growing steadily but from a the current low base. On the other hand, Internet usage in 44 "He who hesitates has no audience", Jolyon Barker, Broadcast. 10 May 1996 13 average life of a PC is three years suggesting the current stock of PCs will become multimedia capable increasing familiarity with these technologies at work and in schools will help to boost home take up further. quickly, wh. ilst fairly One major change in the home has been the transition from collective, family viewing of two or three generalist TV channels to individual family members viewing alone, selecting from the much broader range of channels on offer in today's multi-channel environment. The multi-channel broadcast environment itself competes with packaged media, played on video recorders and video-game consoles. All of this will increasingly compete with the computer, particularly with its use on line. the Aware of the changing patterns of consumption, the television and computing industries are vying Broa~kasters and TV for viewers' attention. manufacturers are enhancing interactive capabilities -of their services and equipment. Today's digital television set-to'p boxes already combine telecommunication functionality. TV sets can already double as monitors when connected to low cost Internet appliances. Many in the consumer electronics industry predict that TV sets with built-in PC capability, including Internet access, will become an important feature of the consumer market in the near term. television and the other end of the spectrum, From the computer industry is already offering multimedia PCs which allow viewing of television channels. Hybrid WebTV set-top boxes combine Internet and digital TV reception with facilities allowing storage and manipulation of video content, enabling applications as diverse as downloading of films and sending of video-clips as E-mail. Whether the PC/TV or the TV/PC will win this battle is, at the moment, quite unclear. What is certain however is that the consumer's "home platform" is set for significant evolution over the next few years. Yet at the same time and in parallel, consumer demands and needs for better access to information will also allow for convergence of telecommunications, media and information technology products and services that cater to public interest domains such as education, health, environment and transport. those :~. ~~~1:~9fi:Iffi~-™:. !~. ~~*q~!!f'¥?~ij~!~·J~E•···:~0'. lJ~~~:::;~~~gT~:::·~;·· >, This chapter discussed the overall political and economic context for convergence, placing it against Information Society, and describing the range of Community level activity in this area. the background of the and supply demand It then went on to discuss market trends from perspectives, both punctuating optimistic views on future realisation of convergence with a realistic view of today's patterns of consumption, and the relative starting points of different platforms such as the Internet and free-to-air broadcasting. the (A) Will convergence have a significant impact on job creation, as well as on education and training in the European Union? How is convergence likely to impact the way in which we work? Will its effects be spread evenly throughout the European Community? (8) What effect are current developments likely to have on telecommunications, media and IT sectors, in terms of the underlying economics of those sectors, the services offered and the likely service providers? in What evidence is there of changes in (C) information, the way services, Europe entertainment and culture is being accessed in the home and the office? What are the implications of current levels of PC penetration, Internet use and TV penetration for the take up of new services? What action (if any) is needed to overcome low levels of multimedia computer penetration and Internet use? in In the light of the positions put forward in (D) the Commission Working Paper on the Fifth Framework Programme,45 what of Community RTD projects should be launched in the context of convergence? kinds 45 Op. Cit. Note 42 14 Convergence is already showing signs of being a key driver of current developments in information telecommunications, media and technology of range developments and trends for comment identified in Chapters I and II above have the potential to substantially on the take off of the impact information society in Europe. industries. The In order to formulate an appropriate response to current developments, it is important to launch a broad debate on what, if any, barriers exist - actual or potential - which may hold back the trend towards convergence. Chapter 111 attempts to identify such barriers and invites comments on their impact. Not all the barriers identified are regulatory in nature, nor is a regulatory solution the only means of resolving it seems potential problems. Nevertheless, sensible in the overall context of this Paper to invite reflections on a wide range of factors which might the process of convergence. impact upon are that a barriers regulatory regulatory Where identified therefore, there should not be an automatic assumption is required. As stated earlier, the application of competition rules to this sector is important, and to market solutions which convergence within those solutions will often be more appropriate. tt. ie context of remove barriers response At a Community level, actual or potential barriers must be assessed against the basic objectives of the Treaty, such as the establishment and functioning of an Internal Market; the promotion of a system of undistorted competition; the realisation of trans-European networks, or the maintenance of a high standard of consumer protection. They must also be examined as well as against the specific freedoms envisaged in the Treaty, such as the rules relating to the freedom to provide services or the right of establishment. Rules creating restrictions need to follow a general public interest objective (as laid down in the EC Treaty or by the ECJ) and must be proportionate to that objective to be acceptable. At time, any Community action (including action to harmonise divergent national rules), would pursue these general public interest objectives, and would be subject to the principle of subsidiarity. the same In the following sections, we attempt to identify key actual and potential barriers the development of the convergence phenomenon. and ultimately Information Society in Europe. realisation of the the to to regard Access to users. Approaches differ between sectors with the ownership and to operation of networks. This means that many services will have a limited choice of routes to the customer. Even v. here legal monopolies have been abolished, the economics of the local loop may leave current telecommunications and cable TV network owners with a predominant role in connecting customers in many markets. Where bottleneck facilities are controlled by the vertically-integrated players, potential to limit competition at the service level. there is on use restrictions Regulatory of infrastructure. Current restrictions in some Member States (and not others) regarding what types , of services can be carried on different infrastructures could make for strategies operators formulate unified It may also addressing pan-European markets. prevent economies of scale being realised. The resulting higher unit costs, and hence tariffs, could hold back innovative services. the delivery of it difficult to for services. Among Prices for telecommunications services. High prices for telecommunication services and for the underlying network infrastructure used to deliver services may impact significantly on the demand reported reasons for Internet's success in North America is the widespread application of a flat-rate tariff structure offering 'free' local telephone calls, and the lower charges for leased network capacity. 46 This results in significantly lower costs for access providers. that competition has fact the led to improvements Availability of content. As mooted in Section 11. 1, expansion in the means of delivery brought technology and by on by in from the bottleneck convergence may shift delivery to content, and may lead to a shortage of adequate content term. in Premium content is already a key factor for success in both digital and analogue television markets, Continued shortages could inhibit new market entry, and with it competition and innovation. the medium 46 According to a 1997 OECD report, 20 hours of Internet use cost $38 in Finland, $64 in the UK, and $74 in Germany, compared to $29 in the US. 15 Fragmentation of EU market. Expansion in the number of broadcast television channels will be likely to be at the expense of the market shares of existing broadcasters. Shrinking market shares could be offset by widening the target audience beyond national frontiers. Similarly, as new services develop, much innovation will come from small players exploiting niche markets, or from large players funding large R&D budgets. Either way, they will both need larger volumes than can be provided by national markets in order to defray their costs. Whilst TV channels are free to seek larger audiences as a consequence of the Television without Frontiers Directive, the principle challenge for them may be one of multilingual, multi-cultural audiences, rather than potential barriers to establishment in countries in which they wish to establish a commercial. presence. and/or Insufficient IPR protection. Content providers will only be willing to make content available if their intellectual property rights are sufficiently protected. Similarly, publishers and operators will only invest in innovative services if they are that new means of delivering confident an information adequate degree of protection for the intellectual and industrial effort of their organisations and Insufficient those of content providers. for off-line is already a barrier protection electronic content, and this could project into the on-line world. Recent WIPO ag'reements referred to later in the Paper are helping to clarify the current situation. provides services the existing In view of advanced state of current Community initiatives which adapt legal framework in this area to the digital environment, this Green Paper does not address regulatory issues raised by copyright and related rights. These particular issues have been extensively dealt with in the Green Paper on Copyright and Related Rights in the Information Society and in its follow up Communication, 47 and the resulting approach takes due account of the evolution of technologies towards convergence. Regulatory uncertainty Regulatory uncertainty resulting from the scope of current definitions; the way they are applied or whether they fit changing market service or characteristics could constitute an important barrier to investment by market players. Whilst many definitions today (at both a national and of Community structures level), those such as 47 COM(95) 383 19. 7. 95 and COM(96) 568, 20. 11. 96, respectively. 16 telecommunications, voice telephony, television broadcasting or information society services will continue to remain valid for many activities, the provision of services may be nevertheless be held back where leave regulatory businesses uncertain as treatment which their services will receive. those definitions the to In some cases, this may simply be a risk that, current notwithstanding a definitions for both broadcasting and Community level telecommunications activities, in some Member States may place a particular novel service under one regulatory regime, whilst it is considered to fall under another regime in other Member States. 48 regulators at Furthermore, within Member States barriers could result if similar services were regulated the basis of the differently, for example on platform over which they are delivered. In other cases, the characteristics of services in the future may mean that they straddle more than one regulatory area on the basis of current definitions. This may result in a disproportionate regulatory burden on certain services. the technological and market trends Finally, identified in Chapters I and 11 may also challenge the basis on which definitions are currently drawn up. One example of regulatory uncertainty arose during the recent French election campaign, where rules prohibiting the publication of opinion polls in the week prior to the election applied to off-line media, but not to polls published on the Internet. these A number of editors circumstances ignored the ban which placed traditional media at a disadvantage49 in • Multiple regulatory bodies. The process of obtaining regu~atory clearance in all Member States and potentially from different regulatory bodies for a particular package of services may create substantial overheads for those wanting to operate on a pan-European basis. The provision of services may be held back where market players are subject to a number of regulatory regimes or must deal with multiple regulatory bodies, for example, where a network be is as required infrastructure and as a telecommunications licensed both to 48 One example is Video-on-Demand which according to the Squire Sanders Dempsey Study is considered either treated as a value-added telecommunications service or has not yet been formally categorised in all Member States, except France and the UK, where it falls under the broadcasting framework and Germany, where it falls within the new category of "teleservices". 49 OECD op cit note 5 broadcasting network (because it is used to offer both services). There are licensing. Market entry and differences within telecommunications, the media and IT sectors with regard to whether or limited or not market entry subject to monopoly or special rights. The IT sector is generally free of licensing procedures. is unrestricted, Any use of licensing or any regulatory limitation on market entry represents a potential barrier to the provision of services, to investment and to fair competition and should therefore be limited to justified cases. In particular, the trend should be towards limiting regulation where potential barriers exist, rather than extending heavier regulation to more lightly regulated sectors in order to equalise market conditions. Where licensing continues to be important, there is considerable variation between sectors and between Member States in the length of time it takes to obtain licences; the transparency of procedures; the duration of licences and the fees paid. Many telecommunications and broadcast network licences are national in scope, but others - particularly for cable lV delivery are regional or local in scope. All of these factors, whilst acceptable in the context of the specific sectors, may make it harder or more expensive for organisations to offer an integrated package of services, particularly across borders. This may represent a disproportionate burden given that the technology promotes such integration and there is likely to be increasing demand from both business users and consumers for such integration. there rules. Nevertheless, Access to networks, conditional access systems and content. The issue of access is principally a matter for commercial negotiation, subject to the overall safeguards provided by competition is currently an asymmetry in that access rules are in place only for certain networks (for example, the interconnection and open network rules which apply to telecommunications networks, but not to infrastructure used for broadcasting activities. Similarly, a for conditional access systems for digital television, but not for all types of digital services. (Note that in the latter case, the UK is currently consulting on the development of common framework for conditional access systems for all digital services). framework exists Where market players control the access to the customers, for example, through ownership of the local loop, or through control of conditional access technologies, the company concerned may be able to discriminate in favour of its own services. With regard to access issues linked to content, normal commercial principles generally apply, tempered only by applicable competition rules. One exception to this is the treatment of certain "premium" content in Member States, such as national sporting events where the revision to the Television without Frontiers Directive has provided for the mutual recognition across the Community of events reserved by Member States for free-to-air television broadcasting. Allocation of radio frequency and other resources. The provision of services (and the development of effective competition) will depend on the availability of sufficient network capacity, which for many services means access to radio spectrum. The parallel expansion of television broadcasting, mobile multimedia and the use of wireless voice applications, and technologies within fixed networks will lead to a significant growth in demand. Where there are marked differences in the amount of spectrum available or the way in which it is allocated, potential barriers are likely to arise, impacting the underlying cost-bases of network operation in the different sectors, potentially encouraging competitive entry into one sector rather than another. in particular, Varying approaches to the achievement of public interest objectives. The regulatory frameworks for each of the sectors affected by convergence contain a variety of measures seeking interest to ensure particular public objectives which are specific to those sectors and which are consistent with Community Indeed the Commission attaches objectives. the delivery of general great importance to. interest services50 in ensuring social and regional cohesion in the Community, whilst in the telecommunications area, the steps taken to ensure universal service at a national level now flow from a framework established at a Community level. Nevertheless, the manner in which such objectives are pursued (rather than the objectives themselves). may. represent a potential burden to the organisations subject to obligations in respect of their implementation. In the context of the cross-border provision of services, tensions between differing approaches between sectors and between Member States, could deter such service provision or investment in innovative services or networks. in new environment. Public confidence to level of. protection Where the treatment of the consumer protection, electronic transactions, or data protection and sectors, users and privacy vary across relating legal so See COM(96)443 17 consumers may lack confidence in the services and systems made available, holding back the development of converged services. Lack of standards supporting interoperability and interconnection of converging networks. that any user can The goal of ensuring communicate with any other user will be held back where market action is unable to deliver products and services which are interoperable. Proprietary standards controlled by dominant players could limit such interoperability. In examining the impact of barriers identified above, Chapter IV considers first whether certain features of the convergence phenomenon create new and specific challenges for regulation. IV. 2 Section identifies possible approaches towards key regulatory. Section IV. 3 looks at meeting public interest objectives and Section IV. 4 examines options for a possible future regulatory model. The chapter concludes with an overview of relevant international issues. ~~at is the likely impact of the barriers identified and are there other barriers or factors which may have a significant impact on the convergence process in Europe? ··1y:'~, •·''•~. ~. a•l. i~JS9~!:. it9::!~i~jf~9;re9y~~t~IY •. · ;;;··· · ~P. pfq~~tt:i~J1;1::~~:~::i1:. :;r:. ··:. ·· ;;. }''J'. {>;x;2·•····••"··. ····••. ·······~, the convergence phenomenon Areas where could raise difficulties for existing regulatory approaches are These challenges apply both the substance of regulation and to its practical implementation. Possible solutions to these issues are discussed in Sections IV. 3 to IV. 5. identified below. to The role of regulation for Regulation is r'tot an end in itself. Instead, it is simply a tool, alongside the use of market forces, for achieving wider social, economic and those general policy objectives, such as highlighted in Chapter II. This has already been recognised in the Commission's Communication on electronic commerce, which proposed the principle of "no regulation's regulation sake". 51 This principle applies equally to all fundamental areas of convergence. objectives underpinning the in Member States are not undermined by convergence. These objectives are varied and tailored to the specific needs of different sectors, but include national goals such as promoting efficiency, economic welfare, and the public and level, consumer similar aims are reflected in the provisions and objectives of the EC Treaty. At a Community regulation interest. The Nevertheless, the nature and characteristics of convergence which are examined below, as well as the perceived need of industry actors for regulatory intervention to be limited and closely targeted, should lead public authorities at both a national and a European level to re-examine the role and weight of regulation in a converging 51 Op,cit. The three other principles set out in that Communication are also important in the context of convergence. These were that any regulation must be based on Single Market freedoms; must take account of interest business realities; and, must meet general objectives effectively and efficiently. 18 marketplace. highlighted: Three key issues can be • The role forces. of market Some commentators place particular stress on the need to place greater reliance on the ability of market forces to ensure regulatory objectives. They would argue that this philosophy is reflected in the evolving approach in most Member States in IT and telecommunications, or broadcasting worlds by industry-led development of interoperable standards ar:ld software. Others are doubtful about the ability of market forces to provide adequate ex ante guarantees for consumers, and recognise an important role for regulation in safeguarding public interest objectives. to universal service in the the • The balance sector-specific between regulation and competition rules. A further key issue is the balance between competition rules and sector-specific regulation, with many arguing for a preference to be given to the application of competition to converged cases within individual environment, further the rather development of extensive regulation. rules than a to • Finding workable solutions. Where regulation is in place it must apply in a workable and timely manner. The global nature of the Internet or the regional nature of satellite delivered services point the potential difficulties of enforcing the rules of one Member State in other countries; whilst the rapid pace of change in terms of services and products, measured in months and weeks, presents a real challenge for anyone seeking a to any particular problem. Such solutions at a Community level tend to be measured in months and years. legislative solution The challenge to the consistency of regulation A key feature of a converged environment is the possibility that any network can be used to deliver a much wider range of services than is currently the case. It does not automatically follow that the delivery of different services over a single network or via a single service platform makes those services the same, nor that the public interest objectives underpinning regulation automatically transpose from one service to another. For example, whilst a film, a song, a railway timetable and a phone conversation may all be carried in a digital form, this does not result in these different services/ the user In the same way, activities as interchangeable. treating 19 regulatory approaches to each of these services, whilst potentially based on similar general principles, are likely to continue to be tailored to the specific characteristics of these different services. the could similar services Nevertheless, as stated in chapter Ill, regulating essentially differently, particularly, on the basis of the technology used to deliver represent service, discriminatory treatment which might hold back competition, investment and the provision of services. One example of the treatment of opinion polls under French election law was already cited. Another example could be the limited scope of the current Interconnection regime in telecommunications which would offer interconnection to an organisation operating a public telecommunications network, but not to someone operating a broadcasting network. Interconnection between the two may be of particular importance in the context of to services which use broadcast media download information and services, but rely on the to provide a return channel. telecoms network rights in regulatory In assessing such differences treatment both across sectors and between Member States, any analysis at a Community level would need to consider whether continuing differences were consistent with public interest objectives identified in the Treaty and by the Court of Justice and whether the rules in place were proportionate the objective sought. Where the answer to either question is no, the rules in question could be attacked before the Court of Justice. to the barriers resulted Where from measures which are fully consistent with the Treaty and where principles of mutual recognition could not be applied, Community measures (such as harmonising legislation) might be then justified. The challenge of globalisation The globalisation of services is a ·feature of the new landscape. While satellite television broad casting represents one example, it is the Internet which constitutes the quintessential global network. The Internet's structure and ubiquity potentially allow it to defy attempts to apply existing regulatory objectives at national level. In the new global environment, the way in which networks and services are regulated in different regions has the potential to impact substantially on investment in those regions. Excessive or inadequate regulation in one region could result in a migration of economic activity elsewhere,. with adverse consequences on the development of the Information Society in the former region. The challenge of abundance to regulation based on scarcity Convergence may challenge current regulatory approaches, particularly, with the licensing of networks and allocation of resources, where such approaches reflect a perceived scarcity of both radio-frequency and of content. regard to Current market technological trends, such as substantial increases in network capacity; the to be possibility of content and services delivered over a number of platforms; the increase in competing routes to customers and improvements in digital compression suggest that in a fully digital environment, scarcity may over time become a less significant issue, calling to be for current reassessed. regulatory approaches Nevertheless, the removal of scarcity in the transmission network will not necessarily be accompanied by a corresponding increase in content or services (in particular, "premium" content or services needed those In any event, pending the complete channels. ) from migration of analogue to digital services, capacity bottlenecks are likely to continue for the foreseeable future. the broadcasting sector fill to The challenge to distinctions between public and private activities it may shift Convergence will not prevent the implementation of regulation based on distinctions between what the is private or public, but boundaries of where lines between the two can be drawn. This could have consequences for the level of regulation applied to a particular service. To the extent that rules have been formulated on the basis that particular networks, services or activities are public rather than private, 52 a reassessment may be required to determine whether current boundaries between what is public and what is private remain valid in the light of technological developments. For example, new means of delivering services, interactivity, and the possibility of per-transaction payments may make it harder to draw those lines in the future. Another practical example, is reflected in the two recent WIPO treaties which relate, inter alia, to 52 One example in telecommunications, is that whilst public telecommunications networks may be subject to conditions relating to both public interest objectives and to technical requirements, private telecommunications networks may only be subject to technical requirements. In broadcasting, the definitions of broadcasting in a number of Member States specifically the element of delivery to the public to categorise services falling within the broadcasting regime. include copyright. These have clarified that a "public communication" for the purposes of copyright law includes the situation where a work is made available to the public (for example, via a web site) in an interactive way. The challenge to regulatory structures The fragmentation, complexity and diversity of regulatory structures involved in the converging sectors was one of the issues highlighted in Section 111. 2 above. To the extent that a risk of overlapping regulation exists or the need to deal with multiple regulators within or between Member States, market players may call for a rationalisation of current structures in order to avoid unnecessary administration creating barriers. For example, where services can be offered over a single network, organisations may benefit from dealing with a single regulatory authority in a Member State on questions linked to that network, irrespective of the services offered over the network. >. ~)]'~h'j§h :6~1~nce reliail~' ,,,,,,,,, •. ,4, ~t~n~ ,. ~~~~,~~~~~g!. ,. ,. : ·. :·::;4f:;. ,~·:::. :. ·. :. ;:~~ '. :·:. ~r·1:'"·· :;~. "~<: :-:':'. ·:,::. >·. :·: the' CPf'\Y~r9~~~~". ;:"pro(;~§. S1trna~t'ir:riPact,,·on c;the prin9ipl·~'~YDA~fgipmngi9u~ent'·~eg4l~tiof1. in·. the telecommuo'icatiohs;r·~media·and IT sectors. · ; ··,·J: : ·. _. :· ~~~:: ·. -··. :. _. ~5-'<':!:'; :. :·. ,:·:·. · ,. :· ·. ·. ,. :. ,> (A) Do current developments require more or less regulation in the sectors affected by convergence, more or reliance on competition rules, and more or less reliance on market forces to achieve the objectives identified in earlier Chapters? less if so, Whether and to what extent (B) convergence principles the underpinning existing regulatory approaches in the telecommunications, media and IT sectors? challenges IV. 2 Tackling th~ barriers ~ The regulatory issues This section examines seven broad areas where potential been identified: regulatory barriers have • Definitions • Market entry and Licensing • Access to networks, to conditional access systems and to content • Access to frequency spectrum • Standards 20 • Pricing • Individual consumer interests The section does not address a number of issues which are currently the object of separate initiatives within the Commission. These include areas such as media ownership, digital signatures, and encryption, and as mentioned above, intellectual property rights, copyright and related rights. IV. 2. 1 A need for new definitions? the boundaries· Current definitions delimit regulation and between different sectoral different regulators. Regulation is linked to the definitions of activities. Although regulation can be "technology neutral", as in the broadcasting sector (and increasingly in the telecoms sector) it may be linked to the technology used to offer services, as well as between areas which are regulated and those which are largely free from detailed rules. The convergence process will not remove the need for definitions, but uncertainty about the regulations applicable to activities or different definitions at national level could create barriers to investment or to the provision of services. At the same time, it should be noted that the fact that different services can be delivered over the the same network does not character of the services so that they become one and the same service. itself alter in current approaches In the light of the potential barriers identified regulatory above, definitions those the way definitions are applied by regulatory authorities) should be examined to consider whether they: to in which (and • are sustainable in the light of technological developments; • • result in the same service falling under a more than one regulatory regime, and where it does, whether that is justified. to discrimination by allowing similar regulated lead networks or services differently. to be for certain new activities. A number of Member States have provided definitions In Germany, new concepts of "teleservices" and "media services" have been created, focused on the the nature of the activity rather underlying in technology. France has also focused on the nature of the service rather than its underlying platform. Audiovisual than law Possible options One option would be to continue to work with these existing definitions, recognising that remain valid for the majority of services offered and to extend, where appropriate, the principles underpinning current regulation, whilst adapting the way in which it is applied to take account of the specific characteristics of the "new" services. A second option might be the creation of a separate category of "new" services to co-exist with existing definitions. A third option would be the adaptation of current definitions used in telecommunications, and/or broadcasting trends and developments. reflect current to IV. 2. 2 Market entry and Licensing identified the potential barriers Among in Chapter 111 were a number resulting from the impact of the differing market entry, licensing and operating conditions in the sectors affected by convergence. This raises a number of issues which are considered below: Market Entry The grant of special and exclusive rights by Member States is not incompatible with the Treaty rules, where such rights are justified for the fulfilment of a task of general economic interest assigned to the undertaking concerned and proportionate to the achievement of the objective in question, even if those rights result in a restriction of competition or a barrier to the free movement of services. In this context, some would advocate that where any network can potentially carry any service, public authorities should ensure that regulation does not stop this happening. They would argue that to allow artificial restrictions on the use of networks, or to maintain monopolies where other parts of the converged environment are fully open to competition, may deny users access to innovative services, and create unjustified discrimination. Such an approach would be the seen by technological and market trends identified earlier in this Paper. running counter them as to Barriers could occur in a number of ways: (i) the grant of monopoly or special rights over networks or services to one or a small number of companies, may prevent others from providing the same service; (ii) limiting the services that can be offered over a given network (for example, preventing a telecoms operator from using its network to offer entertainment services) (iii)requiring certain services (such as free-to-air broadcast channels) to be carried, which reduces the scope for other services to be provided, 21 Others would argue that the grant of limited rights or limiting the use of networks to particular purposes are important ways of encouraging investment. Some also argue that these types of restrictions are particularly important where competition is at an early stage or where a particular player enjoys a very strong position (for example, over a competing network or over "premium" content). In such cases, specific safeguards can ensure that potential competitors are not discriminated against or that there are adequate incentives for them to enter the market. According to this argument, appropriate safeguards might take the form of accounting separation or transparency requirements, structural separation or even full line-of-business restrictions. Licensing subject are not Many activities and areas in the computing, and IT areas licensing requirements. That is likely to continue to be the case in the future and the Commission sees no reason why there should be any change in this practice, providing IPR issues are effectively addressed. to regulatory At the same time, licensing is likely to remain a through which public key tool authorities can exercise control over their national markets, particularly in relation to the prov1s1on and broadcasting networks and services. telecommunications of Any assessment of the justification for, and effectiveness of, licensing procedures must in the first instance be made in the context of the specific sector to which these rules are applied. Nevertheless, the range of potential barriers licensing identified suggests to be examined more closely in the light of technology and market trends. linked issue could need in Chapter that this to Ill the Some commentators argue that a key aim must be to make it easier to get into the market and to move towards lighter obligations applied in a converged consistent manner across environment. They are therefore encouraged by examples in the computing, Internet and on-line publishing industries, where a degree of self regulation, for example, in relation to harmful or illegal content on the Internet, has supplemented laws, such as the application of general competition or consumer protection rules applying across whole range of economic activity. Even so, self-regulation is not without risks for the Internal Market given the greater possibility in divergent developing self-regulation, unless co-ordinated to some degree at a Community level. approaches for consumers may At the same time, even where licensing systems are not needed and self-regulatory solutions are proposed, require guarantees that their interests are adequately protected and that the respective responsibilities of service providers and operators are identified with regard to the consumer. Consumers should be the development and operation of any self-regulatory approaches. involved with fully still The global dimension of the Internet and other communications and broadcast services will also impact on approaches to the enforcement of licensing, and call into question the relevance of national licensing of activities carried out either within a Member State or delivered by regional platforms, for example, by satellite. and (beyond through frequency licensing. innovation Encouraging efficient operation Awarding authorities could consider moving away from licensing approaches which prevent innovation or limit efficient operation. One example, in the telecommunications area, would be tying the delivery of services to a particular technological platform - for instance, by requiring separate licensing assignment procedures) for a fixed network operator wishing to use wireless-based systems in the local loop. A new approach to the licensing of broadcast services may be necessary. At present broadcasters are, generally speaking, licensed or authorised on a channel-by-channel basis by the relevant authorities within each Member State. These systems, which. are a product of the historical development of tradition and television broadcasting services may require reviewing in a new multichannel digital environment. Possibilities such as the licensing of broadcasters for a set of services (such as a satellite package or a terrestrial multiplex), rather than for individual. channels should be evaluated. The 1996 UK Broadcasting Act, which provides for digital for multiplex services terrestrial television, is an example. of what is perhaps the beginning of a trend !hat should be encouraged. licences · Common principles for the award of licenses As indicated in Chapter Ill, divergent licensing conditions may deter market entry and act as a barrier to an internal market. Where such barriers are identified, they would have to be justified by a public general interest objective and be proportional to that objective. To avoid such divergence, there may be scope for applying a common set of principles across the Community. These could include: awarding the independent from actors in the sector, authorities should be • 22 • procedures should be transparent and non discriminatory, set against defined timetables, leading to decisions which should be open to appeal and • Any fees associated with a licence be in proportion to the level of effort involved in aaministering the licensing process, and not constitute a discriminatory levy on expected profits. • Notwithstanding the previous principle, fees may, the case of licensing of radio frequency be set at a level which encourages the efficient use of the resources allocated. in IV. 2. 3 Access to networks, conditional access systems and to content digital I and television conditional The question arises as to whether rules for open access currently applied to telecommunications and access infrastructures should be applied more widely in the sectors affected by convergence. If market and technology trends develop as suggested in Chapters this Green Paper, II of convergence is likely to see a shift in the value chain, such that content production, packaging and service provision increase in value (though not necessarily as separate business activities), whilst carrying services over a fixed or wireless in some merger network may, as reflected low value activity, become comparatively activities. This trend will be accompanied by attempts on today's network operators to extend their activities into higher value business areas. the part of Access at either end of the transmission network (i. e. the delivery of the service to the user's phone, PC or television and the ability to access the network in the first place to offer services or content) will be of crucial importance. In general the terms on which access is granted to networks, to conditional access systems, or to is a matter for commercial specific content agreement between market actors. Competition rules will continue to play a central role in resolving problems which may arise. This raises the issue of the role for sector specific rules at a Community level alongside the general Treaty provisions promoting undistorted competition and the free movement of services. is now legislation EC in place supporting commercial agreements for the interconnection and telecommunications of networks and services. Similar legislation is in place in relation to digital television, in particular interoperation regarding Access by third-party broadcasters to conditional access systems. 53 The emerging market will consist of players of very different sizes, but as indicated above there will also be strong vertically-integrated operators audiovisual telecommunications, the from (principally IT/software and broadcasting) industries building on their traditional strengths Issues which could and financial resources. include arise across bundling of content and services, or of network capacity and services, predatory pricing, cross subsidisation of services or equipment, and discrimination in favour of own activities. the different sectors Furthermore, the predominant position of current fixed telecommunications and broadcasting operators in the residential market will mean that they will control for bottlenecks for accessing customers. Apart from the include conditional access and navigation systems. local subscriber foreseeable future these loop, the Access to networks As stressed above, as a general rule issues of access to networks or to content, are a matter the for commercial agreement, subject application of competition rules. Nevertheless, in some areas, regulatory intervention to support the commercial process has been provided for within current frameworks. to In the telecommunications sector, the framework agreed for interconnection ensures that users can contact any other user and that service providers can access those customer on fair, non-discriminatory and proportionate terms. Additionally, powers to intervene and resolve qisputes are given to the national regulatory authorities for telecommunications and a number of safeguards are put in place to ensure greater transparency and non-discriminatory behaviour. As indicated in Chapter Ill, the fact that an open framework is applied to one set of infrastructure but not to others may create barri~rs and distort investment, particularly, if convergence of technologies extends over time to the industry and market and service levels. The issue in the context of possible convergence may therefore be whether there is a case for the extension of open access principles such as those applied to other telecommunications networks, or whether there are other principles which might be developed. infrastructure to Even within the telecommunications sector, the development _of the Internet is raising a range of 53 Directive 95/47/EC on the use of standards for the transmission of television signals, O. J. No. L 281/51, 23. 11. 95. 23 issues connected to the terms on which Internet access providers get access to current fixed and mobile networks. One issue is whether they should enjoy the same interconnection rights as other players and whether they should be able to to unbundled service elements, get access whilst another issue is whether such providers in offering a range of telecommunications services should share some of the obligations of providing telecoms services. 54 issue of access The to conditional access systems may become more significant than the issue of control over the pipe up to the point at which it connects to such a system. in reality, require a introduced under telecommunications sector, Again, the Community policy does not full unbundling of the local loop, or a structural separation of the associated infrastructure, from -the provision of services carried over it. This does not exclude appropriate safeguards or requirements being the issue of In competition rules. unbundling of the local enc of transmission networks is complex and must be closely linked to the degree of overall competition in the market concerned, the availability of viable alternative distribution channels and the starting point for competition in the particular market. Some argue that unbundling may act against the term by consumer removing economic incentives for orgar:iisations to put their own wired or wireless networks in place. interest longer the the in Conditional access systems charges their or investment either Conditional access systems are the technical means by which content and service providers through recoup can subscriptions individual for consumption. The Television Standards Directive provides a regulatory framework for conditional access to digital television services, based on a requirement for those operating such systems to offer broadcasters technical services on a fair, reasonable and non-discriminatory takes a deliberately basis. balanced position for the start-up phase of this new industry. Its requirements are sufficiently light to encourage innovation and investment in a rapidly evolving technical and commercial environment, and sufficiently strong to protect fair competition and consumer welfare. The Commission the pace of is concerned at implementation of this Directive into national law The Directive in the Member States. It is actively employing the powers given to it by the Treaty to ensure implementation. Where timely and correct incorrect the Commission has acted vigorously to ensure proper compliance with the Treaty. implementation has occurred 1 Navigation systems have emerged as a tool to help users manage the growth and range of information and services Information in Examples of navigation systems Society. include Browsers (e. g. Netscape, Microsoft Explorer), search engines {Altavista, Yahoo, etc. ) and electronic programme guides (EPGs). the they form Currently, two distinct market segments - Browsers and search engines are tools for exploring Internet web pages, whereas EPGs represent the electronic ''zappers" of the future, guiding viewers through a myriad of digital television programmes and channels. Many consider that this new mode of programme selection will lead to the demise of the channel concept as we know it today, to be replaced by strong umbrella brands complemented by a la carte choices on the part of consumers. the to explore Browsers and search engines are inherently independent, able Internet universe without tying themselves to particular sources of information, or to particular operating Recently, however, hardware or software. competition concerns have been raised about the possibility of Browsers being packaged with other software or even becoming fully integrated to the software itself. Conditional access and Navigation systems depend for their success on the co-operation of market players present in different parts of the the spectre of a gate value chain, raising keeping role which could be abused, especially by vertically-integrated players, foreclose market entry by others. An extension of the principles already applied to the digital television field with the object of ensuring that new entrants will not be excluded to such systems should be considered. from access to In contrast to Browsers, EPGs are linked to the 'information' accessed via them developing as support devices for specific digital television for offerings of programme bouquets, or Issues of television and ensuring third-party services or programming, and the quality of such listings, Exclusive will be of critical interactive services. importance. ss listing of 54 For further discussion, see the OECD Report Op cit at note 5. A number of the issues linked to the provision of telephony over the Internet are also considered in the Commission's forthcoming Communication on the status of Internet telephony under Directive 90/388/EC 55 Analogous problems have already been addressed under European competition rules, in relation to computer reservation systems for air travel which are governed by Council Regulations 2299/89, for example, 24 arrangements tying particular EPGs to particular service bundles may become a problem requiring regulatory intervention to ensure third party access on transparent and non discriminatory terms. fair, to manage A new feature of the consumer's home terminal is the Application Programming Interface (API). The API is a set of software in the terminal, resembling the operating system of a PC. It is interactive applications, used including EPGs, carried by the terminal, and to provide a specified interface for the development of applications by third-parties. The PC industry owes its success in a large part to the role of de facto standard APls in facilitating the creation of a wide variety of developed applications software. At the time of writing there are a number of different APls used in set top boxes in Europe, risking fragmentation of the market interoperation. Furthermore the combined use of proprietary APls together with EPGs and conditional access leads to increased of risks of abuse by operators controlling access to services. third-party- problems and of in of an environment The market implementation of digital television is rapid occurring technological change, the ·eventual outcome of which is not yet clear. Comments on this issue the Commission should in the Television Standards assessing whether to cope with Directive this technological its market and consequences. is adequate change therefore assist Access to content rules. As a general rule, arrangements made between content providers, rights owners and content carriers are a matter for commercial agreement. If exclusivity is granted, this may be an issue for competition Exclusive agreements between content providers and content carriers may limit consumer choice by excluding access to content provided by competitors, especially until the provision of delivery channels the user. Possession of rights to key content, such as major sporting events, may give market players particular commercial power. is effective competition there to in Although the content industry is heavily scale dependent, it generally exploits such economies of scale by careful management of distribution windows (e. g. cinema, video rental, video sell through, pay-per-view, pay television, free-to-air television). Exclusivity of distribution is often a feature which secures this process for content the owners. Convergence may impact on 3089/93, reviewed in COM(97)246 final, Brussels, 9 July 1997. 25 current basis for window management, and could lead to a greater dependence on non exclusive electronic distribution as a more effective means of maximising revenues. conveyance bottlenecks. the exclusive distribution Likewise, convergence may have the effect of For dissolving example, rights awarded to cable television companies may no longer translate automatically into monopoly power at the service level. Cable companies are to compete with digital satellite and likely terrestrial Internet access providers telecommunications operators. broadcasters, television and IV. 2. 4 Access to the Frequency Spectrum Despite the fact that the digitisat1on underlying convergence significantly expands the potential capacity of transmission networks, the growth of demand, both in terms of market players and bandwidth, means issues will continue to be a key regulatory issue; principle amongst these is access to radio-spectrum. that resource in Frequency spectrum remains a key, but finite resource even the digital age. Whilst significant gains will ultimately result from a switch from analogue to digital technologies, both for mobile telephony and for broadcasting, any transition will remain a slow one. For Internet access and other on-line services, satellite-based delivery offers the possibility of high speed delivery to a PC or television and the use of the fixed telecommunications network as a return path. In addition, the take up of wireless local loops and the arrival of Universal Mobile Telecommunications Services (UMTS) early in the next century all point to a steady growth in ·. demand for spectrum. Given the importance of spectrum, variations identified in Chapter Ill between sectors with regard to how much spectrum is available and how much that spectrum will cost may have an important impact on the development of existing and new delivery channels. Whilst overall allocations are determined at an international and regional level, current differences across sectors to the pricing of frequency may create potential competitive distortions. One example could be where a broadcaster offering multimedia or on-line services uses spectrum obtained free or at low cost, competes with operators from the telecommunications sector who have paid a price reflecting the commercial value of the resource allocated. Many commentators argue from an economic standpoint, pricing spectrum may encourage its more efficient use and may help to ensure that frequency is al. located to the areas that, where it is most needed. They would argue that similar commercial principles should influence frequency policies at the stage that allocation is determined Radio communications Conferences or at a regional level, so that allocation decisions should seek to make spectrum available to high value users in preference to low value users. the World within Were all spectrum to be subject to a commercial valuation this might have a knock-on effect of encouraging existing public users, such as the military or the police, to use more cost-effective technological solutions, freeing up certain frequency bands for new services. is Frequency auctioning favoured by many economists as the way to best ensure outcomes which are in the consumer's ultimate interest. the Although others express concern about impact of such pricing on prices charged to users. With regard to efficient use of spectrum, one approach could be to move away from current practices of assigning particular blocks of spectrum to particular services, or to the use of particular technologies to deliver such services. In such a situation, certain minimum technical safeguards would still be required, (e. g. against electro-magnetic interference between different systems). This is one of the issues raised in the context of the introduction of UMTS, but could be of wider application. In practice this might mean that instead of assigning a particular band of spectrum exclusively for the provision of mobile communications or broadcasting, the assignee could be allowed to use the spectrum for the services of its choice. increasing demand for spectrum, Finally, particularly for UMTS and for satellite-based services puts increasing pressure on existing mechanisms for frequency co-ordination at a regional level. in Chapters I and 11 have illustrated how each part of the converging sectors are moving from analogue to digital technologies. Member States this process by role could play a key developing clear timetables for such a switch in order to give clarity to service planning Others argue that this is an issue of user preference and should be left to market forces. Nevertheless, the level of demand for spectrum is likely to outstrip currently available frequency resources, so that Governments may have a key role in the current balance between reassessing telecommunications, broadcasting and civil/ State usage of available resources. Additionally, consideration might need to be given to whether such a switch over needs to be co-ordinated at a European level. It can be argued that a clear timetable for the complete transition from analogue to digital transmission of services using the frequency spectrum would avoid not only the fragmentation of the Internal Market, but also delays in releasing valuable spectrum used by analogue services today, to other users. issues of Other argue frequency allocation such. as this are governed the by Community has no their resolution. the subsidiarity principle and to play that in that role IV. 2. 5 Standards the It has been argued in this Paper that one of the most important consequences of the blurring of technological borders between information technology, telecommunications and consumer increasing globalisation of electronics is services. The inherently global nature of the Information Society calls for any standardisation in support of its development to be similarly from any global. Users may want access terminal to any service, independently of the technology used, or the geographical point of such access, within a multi-vendor environment. A major objectite for standardisation therefore is to achieve interoperability between networks and services. Technological harmonisation is not an objective. However, standardisation is a tool which can reinforce both general policy objectives, such as the creation of an Internal Market for communications services, and the Encouraging best regulatory business practices to data protection and security of digital signatures may be supported by standardisation and consensus building within regulatory framework. 56 in areas related appropriate framework. an There is a legitimate public interest in providing industry, users and public authorities with efficient platforms for consensus building both at European and international level. Even though the Information Society is global, s_tandardisation can start at regional level, provided that players the from other activities. The workshop mechanism has the potential to offer the platform for consensus building while it also allows European players to international increase standardisation scene. regions can participate impact on their the in IV. 2. 6 Pricing The IT and on-line publishing markets operate In almost entirely free of specific price controls. the broadcasting sector, price controls (e. g. on the licence fee), where they exist, are generally 56 Op. cit. Note 60 26 for is based on free-to-air channels. motivated by public interest objectives seeking to ensure that service remains affordable for viewers and listeners, so that high penetration is achieved The affordability requirement for universal service in the same telecommunications premise and translates, in a number of Member States, into a price cap mechanisms applying to a basket of retail and/or business services and to subsidised social tariffs for particular groups of users. Pay TV channels including premium services, as well as commercial activities of free to air regulators are not generally subject tb price regulation, but are subject to competition from other market operators. Additionally, under specific telecommunications regulation, as part of the transition to fully competitive markets, controls apply to operators with significant market power to require that the charges for interconnection, voice services and leased infrastructure are cost-oriented. In that situation, price regulation is acting in as a proxy for the effects of competition. There has been no direct analogy in the case of point to multi point broadcasting, but interconnect issues are now arising where interactive or transactional elements are being introduced - conditional access is the first such area. Innovative pricing packages will play a key role in promoting services in the Information Society. The take-off of many on-line and transactional services is directly influenced by the cost of the underlying infrastructure. A key commercial message must be that innovative pricing will be central to a much wider take up and use of on line and other services. to whether Additionally, an assessment may need to be there are potential made as distortions where differing pricing rules apply to different networks, even though in a converged environment any network may be able to offer any service. At the same time, the existence of competitive delivery channels is likely to limit the possibility to set prices, for example for network access, independently of competitors, so the case for regulatory intervention may not be made. Finally, convergence may over time expose public broadcasters to commercial pressures. The experience in telecommunications may be illustrative, as operators in this sector have moved over time to price their services in a manner more consistent with the increasingly the competitive environment, notwithstanding regulatory constraints on such pricing. Such experience demonstrates that such adjustment in pricing structure can occur in a manner which does not affect adversely the overall affordability of the services delivered. The manner in which public broadcasters are currently funded (licence fee, advertising, public subsidy) does not allow a direct analogy with telecommunications to be drawn. prevent Whether introduce different broadcasters wishing pricing structures is a matter for comment, as is the that more commercial pricing approaches would have on eligibility for State funding or the ability to access other revenue sources, such as advertising, subscription funding or exploitation of rights. this to impact should ,:1~;~!¥ (A) Are the definitions in the telecommunic- ations, media and IT sectors in national and/or Community the convergence process? legislation adapted to Will the convergence phenomenon (B) require adaptation of existing approaches or the adoption of new approaches to be applied to issues of market entry and licensing; access to conditional networks, access systems), content; and pricing? customers (including to Will convergence require changes in the (C) the award and pricing of approaches in particular what frequency spectrum, and approach should be light of convergence, to the issue of completing the transition to digital services, including the need for a timetable for analogue switch-off? from analogue taken, the in What should be (D) the objectives of standardisation in the light of convergence and what should be the relationship between regional and international standardisation? What additional action the (if any) is (E) interests of required consumers and of users with disabilities are respected in the light of convergence? to ensure that IV. 2. 7 Individual consumer interests The objective of maximising benefits and minimising the risks of consumers implies the need for the creation of adequate regulatory instruments to protect the fundamental rights and responsibilities of consumers arising from the wide circulation of information in the sectors issues, affected by convergence. Privacy 27 responsibility for c9ntent and the protection of minors, free speech versus libel, appropriate jurisdiction and consumer representation, are some of the issues that need to be addressed in the new environment. :'1Yi~IM!~ltii9le@I~lli!!Ii~J~~!¥1!~,!l~!,~ff~ -_. J_:: __ _ Rules seeking to ensure the achievement of certain public and general interest objectives are found in all sectors affected by convergence. As highlighted above, this is fully consistent with the importance attached at a European level to the role of services of general economic interest within the Community concept of European Society. The trends identified in Chapters I and II do not remove the value of universal service regulation for telecommunications, or a public service mission field. the possibilities now offered by Indeed, technology strengthen the need for clear and effective rules relating to specific objectives such as privacy and data protection; the promotion of cultural diversity or the need for a framework for the protection of minors and public order. the broadcasting in Nevertheless, the impact of convergence may well be on the way such objectives are achieved and by whom. Equally as recognised in Chapter Ill, the different rules while adapted the specific characteristics of each sector, may to nevertheless integrated service provision or cross-border operation. potential barriers create to The need for public interest objectives to be clearly defined Universal service obligations in general ensure the universal availability of defined services at an affordable price, whilst the public service mission of broadcasters extends beyond issues of universal availability and price and lays down conditions relating to the content of the services provided. Against this background the starting interest for any analysis of public point objectives in the light of convergence must be the need to define public interest objectives so that market actors have a clear idea of the obligations with which they must comply. Some is also that such an assessment consider essential these in order face of the objectives remain valid media and evolving environment, whilst others argue the objectives remain Valid and only the way in which they are satisfied may evolve. In either case, a proper assessment seems to require a clear identification of underlying objectives. to gauge whether the in communications that In the case of certain objectives in the different sectors, specific obligations have been placed on one or more operator to guarantee these 28 objectives. This is the case with universal service carriers in the telecommunications sector or broadcasters who have been given a public service m1ss1on. the telecommunications case, the cost of ~hose obligations may, where they represent an unfair burden for the operator concerned, be shared with other market players. In framework those entering the position of Some argue that given that such a framework exists within telecommunications, the absence of the public service for a similar mission in broadcasting will deter companies wishing to operate on an integrated basis or favour the telecommunications market from the media side. Others respond that convergence does not challenge the existence of different approaches, given the underlying objectives are quite different. They further argue that it is simply not possible to cost obligations relating to the public service mission in any meaningful way, and that comparisons with the experience of telecoms are unhelpful in this regard. A further issue is who might in future be able to fulfil a public service mission or offer universal service? Obligations have traditionally fallen on a single designated organisation, (though that is now changing ill 1he case of universal service in some Member States). However, the possibility of offering voice telephony services over a computer or a television, or the ability to use the Internet to read, watch or listen to broadcasters' programming illustrates the possibility that new platforms may play a role in meeting such obligations. The question arises as to whether this is an additional reason for such obligations to be properly identified. the issue undertake is whether existing Additionally, in order to frameworks should be changed cre3te a coherent framework for both public and private broadcasting organisations, for example so that different organisations are allowed to bid including to organisations from outside the traditional sector. Where specific support in the form of industry or even public funding is available for the provision of such services, the issue arises, inter a/ia, as to whether that mechanism would need to be open to any organisation willing to be designated as fulfilling public interest obligations. obligations, such Content-related objectives is to leading Convergence a already reassessment of appro~ches to the means of implementing objectives regarding content. This has already been the case with approaches to harmful and illegal content on the Internet (see Section IV. 1 ). At its most basic, the central issue is not the validity of particular rules but whether the impact of technology on particular services requires a reassessment of the means of achieving the objectives in question. Essentially this is an application of the principle of proportionality which means that current approaches must be assessed in the light of the specific characteristics of the service concerned. This means that there does not have to be a single standard applicable to the same content for distribution. whatever Instead, different standards might apply. For example, it is likely that the controls applied to advertising on a free-to-air broadcast would b~ considered inappropriate, if applied to a pay-TV programme or an Internet service, because of the specific characteristics of the service concerned. the channel used The role of public service broadcasting the The public service mission entrusted to public service broadcasters is recognised as of cultural importance organisations with and this regard are entitled to responsibilities in appropriate funding, subject to compatibility with the rules of the Treaty. The recent Protocol on public broadcasting attached to the Amsterdam Treaty confirms this point. 57 information Convergence may however enable many more sources of audiovisual to be accessed by viewers. Public authorities will need to monitor on a continuing basis the extent to which desired policy objectives are being achieved by normal market activity, including the impact of other media, and whether, as a consequence, regulatory obligations placed on broadcasters may be lightened. in the their content could to Traditional public broadcasters will need reappraise convergent role environment. On the one hand, their market share is likely to diminish as users face an increasing choice in a market already near to saturation in terms of the individual potential for consumption of audiovisual services within a 24- for hour day. Moreover, escalating prices to premium them subject budgetary pressures the that might outstrip capabilities of existing funding mechanisms. The issue will be whether public broadcasters can continue to have access to attractive content in the face of fierce competition for the acquisition of programme rights, within the constraints of their existing funding mechanisms. Many are preparing to exploit their reputation and their customers' "brand loyalty" to compete with new pay-television broadcasters. 57 Protocol no 32 on the system of public broadcasting in the Member States, annexed to the EC Treaty. 29 in funding. The regulatory On the other hand, technological convergence offers public broadcasters a range of new possibilities, terms of both ·activities and potential avenues to viewers and listeners. This can enhance their current role and provide valuable new sources of revenue alongside current framework should allow broadcasters to take advantage of these new opportunities. It should atso permit them to benefit from economies of scale and scope where these also bring benefits for the consumer. However, if state funds intended to support a public broadcaster in fulfilling its public service mission were used to leverage and cross-subsidise these new activities or the use of new technological platforms, such as the Internet, then such practices would be subject to the Treaty rules on competition and on the freedom to provide services. Other general interest objectives that their privacy to be assured Ensuring Privacy and Data Protection. In order for convergent services to develop, users need is adequately protected and, in particular, to have confidence in the security of information passed over the networks they use. Legislation has already been agreed at a Community level addressing data protection58 and this will soon be complemented by specific rules governing data protection and privacy in telecommunic ations. 59 A Cryptography and digital signatures. receflt Commission Communication on digital signatures and encryption has recommended a number of actions aimed at ensuring security and trust in electronic communications. 60 Given. the global character of electronic commerce, emphasis is being given to the need for the cryptographic international availability products and services corresponding the to various needs of business and individuals. of Cultural diversity. The European Court of Justice, in a landmark case invoh(ing the media sector ("TV10" CJEC 23/9 of 9. 10. 94), has that cultural policy objectives recognised constitute public that a Member State may legitimately pursue. Public interest objectives 58 Directive 95/46/EC of the European Parliament and Council of 24 October 1995 on the protection of individuals with regard to. the processing of personal data and the free movement of such data, OJ L281, 23. 11. 95. 59 Proposed directive on the processing of personal data and the protection of privacy in the telecommunications sector,. ,Common Position adopted by the Council on 12. 9. 96, O. J. 96/C 315/06, 24. 10. 96. 60 Commission Communication Towards A European for Digital Signatures And Encryption, Framework COM(97) 503, October 1997 service broadcasting has historically been one vehicle for achieving this. The Protocol on this subject that will be appended to the EC Treaty, as amended by the Treaty of Amsterdam, highlights the fact that "the system of public broadcasting in the Member States is directly related to the democratic, social and cultural needs of each society and to the need to preserve media pluralism". At Community level, Article 128 of the EC Treaty provides that the Community "shall contribute to the flowering of the cultures of the Member States" including in the audiovisual sector, and that the Community shall also "take cultural aspects into account in its action under other provisions of the Treaty". The Commission intends to draw up a Green Paper in the course of 1998 specifically focusing on developing the cuJtural aspects of new audiovisual and information services. to relating interest objectives Protection of minors and public order. While the public protection of minors and public order have traditionally been recognised at national and Community level (cf. , for example, Art. 22 of the the "Television without transactional nature of some convergent services will imply adjustments in the means whereby such objectives are met in order to the principle of ensure due proportionality. frontiers" Directive), respect for of the the difficulty regulatory invalidating approaches Additionally, enforcing safeguards in the context of harmful and illegal Internet provides another content on example of how convergence is challenging to traditional implementation, whilst not the principle that rules are seeking to protect. 61 The global nature of the platform and the difficulty of exercising control within a given Member State are leading to solutions which draw on self regulatory practices by industry rather than on formal re. gulation, accompanied by technological solutions to ensure that parents take greater responsibility. It is against this background that the Commission has adopted a proposal for a Council Recommendation on the Protection of Minors and Human Dignity. 62 This aims to promote common guidelines for the implement ation, at national level, of a framework for self regulation to protect minors and human dignity in audiovisual and information services, whatever the means of conveyance. 61 Commission Communication, Action Plan on promoting safe use of the Internet, COM(97)583, 26. 11. 97 62 Proposal for a Council Recommendation on the Protection of Minors and Human Dignity adopted on18 November 1997. COM(97)570. Does (A) the convergence phenomenon support or challenge the way in which public interest objectives are achieved the in telecommunications, media and IT sectors? Should such objectives be more clearly (8) identified and. where into they particular obligations, should a wider group of actors be able to take on such obligations? translate J~~~. -9~!~_qli~~:rer''~J-f«liir~:. tf!11"~1·~*9~;:~oa~1··· Options for the structure of regulation Chapter Ill highlighted the potential uncertainty resulting from separate and multiple regulation. Such uncertainty was seen as a barrier to current actors wishing to operate across the sectors affected by convergence, and to the wider delivery of services such as electronic commerce or (banking, insurance, securities, etc. ) over converged platforms. financial services that there are Some commentators accept barriers, but see these as neither insuperable nor inconsistent-with the EC Treaty. In practical terms they simply represent normal divisions of activity common with any business operating across a number of sectors of the economy. They would argue vertical approaches to regulation are sustainable and provide a high degree of certainty for most market actors. current that to these barriers as An alternative view sees running counter logic of current the technological and market trends. According to this view, a single regulatory model for all sectors within a converged environment, based on common principles, but perhaps maintaining certain distinct elements focused on the specific services offered, is required. Others argue that any horizontal approach should reflect the technological reality of the possibility of any network carrying any service 30 in the idea inherent Nevertheless, of convergence is the reality that a strict separation between service provision on the one hand, and transmission and carriage on the other may not be possible and could create difficulties in addressing issues of market power and vertical integration. Balancing Community and Member State responsibilities regional sometimes In looking at the options for a possible future regulatory model, account must be taken of the way in which responsibilities will continue to be shared between the Community and Member States and within Member States, between national, local and authorities. From a Community perspective, the EC Treaty defines on the basis of subsidiarity those areas in which the Community has a role to play. Such action may be taken, assuming it is an area for which the Community is competent, "only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can, therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community. " ma' s~cfor:,i:; s~ct. ·hUm b~tW~~fr :_. :-<f:. , ,> , Do current developments (A} require a reassessment of the way in which rules are applied to the telecommunications, broadcasting and IT sectors? the Does existence (B) of different regulatory authorities or ministries responsible telecommunications, for different aspects of media and IT activities offer a workable structure for light of convergence? regulatory supervision the in Will convergence (C) a reassessment of regulatory responsibilities at a national, Community or international level, and, if so which areas? require infrastructure. issues affecting and therefore confine the development of a horizontal approach the to This would allow underlying different treatment of the services provided via that network. Roles applied at a service level might perhaps follow current vertical divisions at those the service divisions to reflect changes in technologies and markets. level or perhaps redraw these cases, the approach is In both of essentially to shift away from a vertical model of sectoral regulation and towards a horizontal approach which seeks to distinguish between layer within the network or converging sectors and the services carried over those networks transmission Two studies carried out for the Commission 63 suggest that the replacement of current vertical structures with horizontal separations between service provision/content and conveyance appears to offer a possible solution to the types of the barriers identified in Chapter Ill. linked to underlying Definitional issues of where services may fall will remain, but should be more future proof, being less technologies. The distinction between the two horizontal layers nonetheless permits distinct regulatory criteria to be applied layer, but with due recognition of the links between each layer. to each Chapter Ill highlighted the impact on companies of having to deal with a number of different regulatory bodies for different aspects of their these integrated activities. barriers are lowered will be important in creating a climate for innovation and investment. Ensuring that Were the idea of moving from vertical regulatory to a more horizontal approach divisions accepted, this might make it easier for business to benefit from a one-stop shop approach. dividing responsibilities important question One is whether such rationalisation should lead to a single regulator dealing with all aspects - content as well as service provision and delivery, or whether a structure between services and transmission activities might be more appropriate, or indeed, multiple regulatory bodies at either of those layers. Some would view a single body as more able to maintain a coherent approach, integrating more seamlessly interest and economic efficiency the public aspects of regulation within one framework. Others would favour a continued separation in order to avoid risks of the public interest being compromised by economic priorities. 63 Op. cit. 19 31 Given the regional and global nature of many of the services being delivered, that subsidiarity test may be met. Diverse national approaches may harm rather than promote users' interests, could undermine the diversity which the internal market offers, and may well introduce distortions which favour the establishment of production facilities in regions where a lighter regime applies. Globalisation amplifies the international dimen sion of convergence. One clear example is the continued rapid expansion of the Internet world wide, which will undoubtedly give rise to further technological and industrial transformations, as well as to exciting social, cultural, and ultimately, commercial opportunities. These effects will not. be confined ·to the European Community and North America only. They are just as likely to produce fundamental changes among our neighbours in Central and Eastern Europe, and more broadly, in the developing world. The global reach of the Internet has already shown a need for international solutions to a number of key issues such as security, intellectual property rights, customs, privacy, interoperability and cybercrime. In contrast, many regulatory issues associated with telecommunications and broadcasting have until recently been focused at national or regional levels in the Community, given the national orientation of licensing in those sectors. Multilateral dialogue on frameworks covering different aspects of telecommunications and information technology, and involving govern ments and industry, is currently being pursued in many The Commission, fora. through a series of international summits on the Information Society, has been actively promoting a range of regulatory initiatives in the countries of Central and Eastern Europe. international Existing international organisations, such as the World Intellectual Property Organisation (WIPO), the ITU and the OECD have perceived the need to consider the potential impact of convergence and to launch Internet and electronic commerce related activities. Convergence was the theme of the ITU's Sixth Regulatory Colloquium. 64 In some cases, this has already led to agreement on principles or minimal rules. Examples include the two WIPO Treaties of December 1996 on 64 The Regulatory Implications of Telecommunications the Sixth Convergence, Chairman's Report of Regulatory Colloquium on role of government in an era of Telecom deregulation, ITU, Geneva, 11-13 December 1996. the changing copyright and certain related rights (the "WIPO Copyright Treaty" and "the WIPO Performance and Phonograms Treaty"), and the Bonn Declaration of July 1997. rights, democratic values and The Council of Europe is currently working on aspects of the Information Society relating to human the freedom of expression and is expected to adopt Resolutions on these issues at the 5th European Ministerial Conference on Mass Media Policy in Thessaloniki in December 1997 Landmark global agreements such as the Information Technology Agreement (ITA), the Mutual Recognition Agreements on conformity assessment the WTO/GATS agreement telecommunications services (February 1997) have also contributed to a new global perspective on regulatory is~ues. The WTO agreement · does not apply to broadcasting. (MRAs ), and on basic As these efforts are reinforced, it may become apparent that they need to take into account new factors such as convergence and globalisation, as well as the impact of these changes on economies beyond the industrialised world. For example, the Internet could give rise to spill-over between by different organisations and currently involves important new and less conventional actors, such as the Internet Society. 65 Furthermore, any formal principles and rules will most likely need to draw on some element of self-regulation by industry players. issues dealt with it might be this context, In judged more appropriate to launch a process of international the aim of reaching agreed dialogue with in solutions as and when problems arise conjunction with technological, social and industrial developments. Such a process would be flexible and open. It would have no formally fixed time-frame and would be open to all actors concerned, including international organisations, the various Internet bodies (e. g: the Internet Engineering Task Force ·and Internet Advisory Board), and technical experts. Such an international dialogue process could give rise to the creation of specific working groups with a view to focusing on specific issues such as digital signatures or customs and taxation. The overall aim of such a process, once it has been launched, could be to develop an international charter on global communications, though the scope and aims of such· a charter remain to be defined. the 65 The Internet society is a non-governmental professional organisation whose aim is to develop a consensus on solutions which promote progress of the Internet. 32 Is (A) further action international level in light of convergence? required at an to What additional steps (if any) are (B) required countries, particularly, in Central and Eastern Europe, to create current conditions within which developments can be exploited? encourage other Whilst the aim of this Green Paper is to invite comment and stimulate debate, rather than take positions at this stage, this Chapter, drawing on the previous analysis, sets out in Section V. 1 below a number of principles which could provide a common basis for future approaches in the sectors affected by convergence. In Section V. 2, the Commission believes may stimulate debate regarding the adaptation of current regulatory approaches, where required, in the light of the convergence phenomenon. three options which it sets out Irrespective of whether or not full convergence occurs, the range of technological and market trends, the potential barriers and the regulatory issues identified in this Green Paper, all point to a changing environment against which the policy objectives of these sectors must be judged. Future decisions must therefore not only be derived regulatory approaches closely tailored to the sectors involved. They should also be able to draw on a common understanding of principles which could underpin future action. from In this section, the Commission tentatively puts forward five such principles for comment. 1. Regulation should be limited to what is to achieve clearly strictly necessary identified objectives. Given the speed, dynamism and power of innovation of impacted by the sectors convergence, public authorities must avoid approaches which lead to over-regulation, or which simply seek to extend existing rules in the telecommunications and media sectors to areas and activities which· are largely unregulated today. Any rules put in place should be tailored to meet clearly in a proportionate manner, identified objectives 2. Future regulatory approaches should respond to the needs of u_sers terms of offering A key priority of any regulatory framework should be to seek to meet the needs of users in them more choice, improving levels of service and lower prices, whilst fully guaranteeing consumer rights and the general public Such an approach is fully consist. ent with wider policy interest. 33 goals which recognise the important role of the many of Information Society into citizens' everyday lives. the sectors in bringing 3. Regulatory decisions should be guided by for a clear and predictable a need framework. Regulators should seek to ensure a clear and predictable framework within which business can invest. Where issues can be left to market players, this should be made clear. Where new activities creates uncertainty as to how and if they should be regulated, this should be clarified. This does not mean that the framework may not evolve, but it should do so against predetermined criteria, maintaining as far as possible the flexibility to respond to changes in a fast-moving market. 4. Ensuring full participation in a converged environment. Building on existing concepts of universal service in telecommunications and the public in broadcasting, public service m1ss1on that authorities should seek everyone the Information Society. Convergence in this to offer new means of context participation. to ensure in to participate is able likely is 5. Independent and effective regulators will be central to a converging environment. Whilst the general trend is towards lighter regulation, the increased competition brought on by convergence underlines the need for regulators. effective Regulatory is particularly important where the state retains a share holding in any market player. independence independent and \f. ~. opti9n~··. fc>f r~gulal(>ry d~velopment If it is established that there is need to consider changes to the overall regulatory approach in the face of the trends towards convergence, there may be many ways of achieving such an adaptation. considering approaches, In a possible successful formula is likely to require more than just the creation of a flexible framework for new types of services. It would also be essential to provide a road map which allows the existing framework to adapt or be adapted at a pace which non discriminatory market conditions and which provides that users' interests are well served. continues ensure fair, to The speed and manner in which change is managed are at the heart of the transitional issues. This Green Paper cannot propose a specific the time focusing Commission anticipates regulatory around developments, though such a list is neither intended to be comprehensive nor closed. three basic options Nevertheless, the debate table. for Option 1: Build on current structures in publishing and this situation, current vertical In regulatory models would be left in place. This means that different rules apply in telecommunications and audiovisual/broadcasting sectors, and to a lesser Building on extent established existing frameworks at a EC and national level would be extended on an ad hoc basis, principally at national the demands of a competitive market and the challenges of new technologies and services. principles, to meet these level, IT. Normal principles of interpretation would be applied on a case by case basis to resolve questions of where particular activities might fall. To the extent necessary, co-ordination might be strengthened at a European level to attempt to through minimise national in different Member States to emerging services. the. risk of rules being applied differently fragmentation The pace of change would be dictated by the speed of innovation and the effectiveness of competition. This would allow the regulatory framework to adapt in response to market forces of for a and deregulation/regulation could be avoided. the need round fresh Such an approach would minimise the need for change in the near future, and could be effective in providing a predictable regulatory framework for investment, whilst avoiding the creation of unjustified barriers within the internal market. However, in place certain leave anomalies which today deter investment. it might if not co The pace and scope of change, ordinated at a European· level, could risk creating significant new barriers between Member States and slowing the transition to the Information Society. Option 2: Develop a separate regulatory model for new activities, to co-exist with telecommunications and broadcasting regulation This option would mean that Member States would "carve out" new services and activities which cross traditional boundaries, placing them under a distinct set of rules, if rules are needed at all. This would allow a co-ordinated approach to be developed in relation to many of the high 34 of services alongside characterise activities which value the converging market place, by creating a new category existing regulatory models for telecommunications and broadcasting. Essentially, the result would be to move away from technology-based or platform based market boundaries for a wide-range of for services, whilst allowing traditional and to be adapted more broadcasting activities gradually. telecommunications framework core the The principle difficulty in such an approach is determining the boundaries of what may be part of a lightly regulated,· new service world and what remains subject to traditional regulation. One approach might be to identify certain types of service, e. g. Web-TV or the Internet or the operation of conditional access systems, negatively as neither telecommunications nor broadcasting. Experience in the telecommunic atiors sector with a delimitation of liberalised services, on the basis of defining only what is left in the practical difficulties of such an approach. the monopoly area, shows Option 3: Progressively introduce a new regulatory model to cover the whole range of existing and new services This option is the most far-reaching. It calls for a fundamental reassessment and reform of today's regulatory environment. inconsistencies, This does not necessarily imply a whole new set of laws, but rather looking to see how existing to promote frameworks can be adapted flexibility; avoid remove discrimination within and across sectors and continue to ensure the achievement of public Instead of applying to just interest objectives. some services (as proposed in Option 2), this option would create a framework covering all sectors. This option would require a broader definition of communication services to supersede those of telecommunications and audiovisual services within Community legislation. Proportionality would be a necessary feature of the new environment given that within such a broad definition, the level of regulation would have to be matched to the nature of the service and the intensity of competition. Such an option might be considered to be too ambitious. However, it would not necessarily lead to sudden disruptive change. The approach could be graduated, focusing in the first instance on priority areas in which a consistent regulatory approach is required (e. g. network operation or access issues). Another key feature of this approach would be to allow sufficient time for migration from the old to a new regime. What effect will convergence have on {A) the principles for future regulation applied in the telecommunications, media and IT sectors, and should those principles be adapted in the light of convergence? (B) existing adaptation: If convergence requires adaptation of that regulatory ~pproaches, should (i) seek to build on, and if appropriate, extend existing frameworks, rather than create new ones; (ii) create a new framework for many on-line and interactive services, to co-exist with the those currently applied to traditional telecommunic ations and broadcasting activities, or (iii)seek to create a comprehensive framework applying similar regulatory approaches to all three sectors. v:~:T•m~. ~§(i:!2i:,fq!ijf~. ·~. cti9Ji•···:····· The following outline schedule of activities is envisaged: • A five-month public consultation period (December 1997 to April 1998 inclusive). · • A report on this public consultation to be prepared by June 1998. • The Council and the European Parliament are expected to adopt any Resolutions on this matter in the second quarter of 1998. • to response In the these Commission could prepare a Convergence Action Plan by the end of 1998. resolutions, • The already-announced Telecommunications Review will be conducted in 1999. Interleaved with these. milestones will be a number of important activities in the media field. The Oreja High-level Group on audiovisual policy has been convened and is expected to report in September 1998. A major conference on the matter is scheduled to be held in April 35 1998 in Birmingham, under the joint sponsorship of the British Presidency and the Commission. This Green Paper analyses the convergence phenomenon and its implications for the existing regulatory the telecommunications, media and information technology sectors. frameworks governing is not The implications of these developments are far Convergence reaching. just about technology. It is about services and about new ways of doing business and of interacting with society. The changes described in this Green Paper have the potential to improve substantially the quality of life to integrate Europe's regions better into the heart to make of businesses more effective and competitive on global and national markets. the European economy, and for Europe's citizens; The emergence of new services and the development of existing services are expected to expand the overall information market, providing new routes the citizen and building on Europe's rich cultural heritage, its potential for innovation and its creative ambitions. to to the the door The global nature of communications platforms today, particularly, the Internet, are providing a key which opens further integration of the World economy. At the same time, the low cost of establishing a presence on the World Wide Web, is making it possible for businesses of all sizes to develop a regional and global reach. Globalisation will be key theme in future developments, as changes in Europe are mirrored by developments all over the World. these changes by If Eur. ope can embrace creating an environment which supports rather than holds back''the process of change we will have created a powerful motor for job creation and growth, increasing consumer choice and promoting cultural diversity. If Europe fails to do so, or fails to do so rapidly enough, there are real risks that our businesses and citizens will be left to travel in the slow lane of an information revolution which is being embraced by businesses, users and by Governments around the World. The issue involved are complex and will require much discussion before any new Community initiatives can be proposed. The Green Paper is intended to launch such a discussion and all It is interested parties are invited to participate. hoped that this discussion will be profound and far this public consultation will be reported in a Commission Communication in June 1998. reaching. The results of This Green Paper represents a step on the way to securing the benefits of convergence for European social and economic development. The June Communication will allow political the European positions the Parliament, the Council of Ministers, the Economic and Social Committee and Committee of for clear objectives for future policy to be established. the Regions, and taken by to be to to support This Green Paper initiates a new phase in the the European Union's policy approach As such communications environment. it the overall represents a key element of framework put the in place development of an Information Society. It builds on the current strengths of the frameworks for telecommunications (launched by the landmark 1987 Green Paper on telecommunication 66 ) and for media (established by various Community legislative initiatives), and offers all interested parties an opportunity to comment on the future post-1998 shape the sectors communications environment, affected by convergence. regulation, the in of in This first step is intended to pave the way for the regulatory development of an appropriate environment wtiich will full facilitate achievement of the opportunities· offered by the Information Society, in the interests of Europe and it's citizens as the 21st century begins. the 06 COM(87) 290 final 3G in This annex describes existing the regulatory environments for telecommunications and media sectors. The absence of regulation in the IT field is also noted. the European Union Telecommunications regulation is gearing up for full liberalisation A clear framework for effective competitio~ throughout the European Community has now been put in place and is ,at an advanced stage of implementation in national law as the 1998 In reality the transition deadline approaches. from monopoly to effective competition has required a profound reform of regulation in the telecommunications sector, with rules agreed to set the dates for liberalisation of the sector and to provide a common regulatory framework covering, inter alia: - conditions for market entry (e. g. common framework licensing - procedures, timetable and conditions which may be attached) for - maintenance of public interest (e. g. a framework guaranteeing the delivery of universal service and specifying consumer rights in relation, for example, to the voice telephony service; and rules covering data protection and privacy); - interoperability of interconnection and services and networks, and fair allocation of resources (e. g. access to numbers, availability of radio-frequency spectrum) A fundamental consideration has been the need to limit regulation to the minimum required to secure the overall public interest and to enable effective entry and sustainable competition. regulatory framework focus of the for The telecommunications has been on networks and service provision (including aspects linked to safeguarding the public interest) and not on the those regulation of content carried over networks. Three aspects of this focus on an internal market for telecommunications can be highlighted: - - the removal of barriers to investment and innovation within the internal market; ensuring conditions European networks and services; that support pan - maintaining a defined level of service for users on agreement The WTO/GATS basic telecommunications reached on 15 February line with the EC regulatory 1997 is fully in framework for the sector. This applies not only to the dates set for liberalisation, but also with regard to the underlying regulatory principles. The deal does not cover broadcasting and it only applied (transport) telecommunications services. Thus it does not cover any "content services67 " which may be transmitted through telecommunications services. to Audiovisual regulation At a Community level, current audiovisual regulation aims to achieve the free circulation of services in accordance with Article 59 of the Treaty. It is an example of the application of subsidiarity whereby Community legislation has been adopted solely when absolutely necessary to achieve the aforementioned Treaty objective. National rules have been co-ordinated to the degree necessary to remove barriers resulting from disparities between these regulations, when such rules are justified for legitimate public interest reasons. in interest law led objective Historically, the Court of Justice has recognised the absence of harmonisation at a that Community level, Member States could impose their national rules on service providers from other Member States, where those rules pursued and were a general proporticff1al to achieving that objective. 68 This case the adoption of the main Community instrument in this area, the so-called Television Without Frontiers Directive (TVWF) which co-ordinates national regulations in a number of fields relating to the provision of broadcast criteria, tele-shopping, advertising, protection of minors, public order, right of reply, promotion of European programmes). sponsorship, Uurisdiction services to This Directive is based on the principle of "home country" control, i. e. control by the ciuthorities in the country of origin under whose jurisdiction the broadcaster falls. It has proved its effectiveness 67 The on EC GA TS basic commitments the economic telecommunications services exclude activity consisting of content provision which require transport, such telecommunications services content provision being subject the specific commitments undertaken by the EC in other relevant sectors. The EC has not undertaken any GATS commitments on audiovisual/broadcasting services. There are also some exemptions to the MFN {Most Favoured-Nation) principle in audiovisual services in order to protect cultural values. for its to 68 Case n° C52/79 of 18/3/80 Procureur du Roi v. Marc J. V. C. Debauve 37 · framework to change within in the current broadcasting environment. 69 • A Directive70 amending the original 1989 text was recently adopted in order to adapt the legal the audiovisual landscape. The new Directive must be transposed by the end of 1998; the Commission will ensure that this process is rigorously brought to fruition. The Directive leaves certain matters to the Member States, one of which is licensing. It was not considered that differences in these areas would create obstacles to the functioning of the Internal Market, i. e. to the free movement of television broadcasts. The Member States are required to ensure that broadcasters within their jurisdiction meet the minimal rules laid down in the Directive, but [in accordance with Article 189(3) of the Treaty] may decide how such obligations are to be implemented at national level. Two further initiatives have been taken, in part with the purpose of supplementing the TVWF Directive in creating the legal framework for the 'European audiovisual area'. the Council adopted a directive on the co-ordination of certain rules concerning copyright and rights related to satellite broadcasting and cable retransmission. 71 More recently, the Commission has proposed a directive on the legal protection of conditional access services. 72 to copyright, applicable In 1993, is the above-mentioned Community Apart from initiatives, audiovisual largely regulation national in scope. The typology of regulation of audiovisual services is generally either positive (an obligation to fulfil e. g. provide a balanced range of programming) or negative (regulation to limit certain types of materiel e. g. incitement to racial hatred). Positive obligations are often met in practice, to varying degrees from one Member State to another, by broadcasters vested with a public service mission. Existing regulation is based in part on the widespread availability of television (its "pervasiveness"). It is clear that regulation must meet a proportionality test, and in a digital age it should and indeed is already evolving. This means that a lighter regulatory touch could be appropriate as a function of the nature of the service (e. g. satellite or cable pay per-view is generally more lightly regulated than terrestrial most pervasive of all media). free-to-air television, arguably the Publishing and IT The publishing sector operates within a framework of more limited sector-specific regulation compared to telecommunications and audiovisual/broadcasting sectors, and there are fewer regulatory barriers to entry (in the sense of formal licensing requirements), although there are stringent rules applying to this sector. At the same time, a range of controls are applicable to the broadcast media (for example, those relating to pluralism, foreign ownership and right-of-reply) also apply in some form to the publishing sector (and, in particular, the press), reflecting public interest objectives common to both sectors. However, the implementation of some of those principles for the publishing sector is through self-regulatory bodies, such as Press or Industry Councils or Codes of Practice, in contrast to the stronger powers for regulatory intervention in the broadcasting field. In addition many of the general rules related to public morals, advertising, intellectual property protection, access to public documents, also apply to the publishing sector. libel, privacy, The Information Technology and software industries have even less of a tradition of sector specific regulation, though once again horizontal rules relating to issues such as export controls, electro-magnetic interference; or consumer protection would apply, as would general competition law. software industries than infrastructure The Internet is more closely associated with IT with and telecommunications whose its uses. Whilst the network over which much of the Internet traffic flows is subject to detailed regulation; the organisation, management and allocation of resources within the Internet has The been Community has actively supported an industry led approach in its work on harmful and illegal content on the Internet, and more generally in the media. 73 industry and user-led. largely Whilst approaches may be changing, particularly in key areas such as naming and addressing, there has been little sector-specific regulation of the Internet in Europe. 74 69 See "Second Report on the Application of Directive 89/552/EEC" COM(97)523 final of 24/10/1997 70 Directive 97/36/EC amending Directive 89/552/EEC, the 'Television without Frontiers' Directive, 30. 06. 1997, JO L 202, 30. 07. 97, p. 60. 71 Directive 93/83/EEC, OJ L248, 6. 10. 93 72 COM(97) 356 final of 9. 7. 1997 73 Op cit. note 28 see Green Paper on the protection of minors and human dignity in audiovisual and information services, COM (96) 483, 16. 10. 97 and Communication on the illegal and Harmful content on the Internet, COM(96) 487, 16. 10. 97. 74 This contrasts with the approach in Singapore, Vietnam, or China, where restrictions have been put in place. 38 ISSN 0254-1475 COM(97) 623 final DOCUMENTS EN 04 05 15 16 Catalogue number CB-C0-97-701-EN-C ISBN 92-78-28995-7 Office for Official Publications of the European Communities L-2985 Luxembourg