Telecommunications and audio-visual convergence: Regulatory issues

TELECOMMUNICATIONS

AND AUDIO-VISUAL

c) d)

TELECOMMUNICATIONS

REGULATION

Historically distinct regulatory structures have been developed for the telecommunications and audio-visual sectors based upon distinct principles and with differing aims. In telecommunications the provision and operation of the physical infrastructure, the network, and access to that network were regulated. This regulation was based largely on economic criteria. Based upon natural monopoly and network externality arguments, access to and use of the network was regulated on the basis of:a) Common carriage, i.e. universal access rights b) Non-discriminatory tariffing (to prevent cream-skimming, cherry picking etc.). Inter-connection. c) d) Price and/or profit control. Except in the US, since the network was a public sector monopoly, control of prices and returns were a directly political matter. The message content was a private transaction between individual subscribers and was unregulated.

AUDIO-VISUAL REGULATION In the audio-visual sector two regulatory systems have applied. For the film industry cinema ownership and distribution have been regulated by competition law, film content has been regulated by a system of censorship classification and film production, distribution and exhibition have all benefitted, in different ways in each Member State, from forms of state aid supported by either unfair terms of trade or cultural heritage arguments. For broadcasting both the distribution networks and the content were regulated. This regulation was based upon political and cultural criteria. Access to scarce spectrum was controlled by licences and this power was in its turn used both to ensure universal signal coverage and as a basis for content regulation. This content regulation has differed in detail as between Member States, but in general it was used in an attempt to ensure:a) Pluralism - this concept included:1) the provision of a balanced range of programme types, e.g. information, entertainment and education, 2) access to a range of ‘voices’ within each programme type1 provision for a range of audiences, both majority and minority, e.g. children or ethnic and linguistic minorities. Impartiality - the balanced coverage and presentation of information to ensure that no special interest group had undue influence over output. This included detailed rules

3)

b)

CONVERGENCE: REGULATORY ISSUES governing the use of broadcasting for political purposes and strict controls on advertizing to ensure that advertizers could not influence programming decisions. Protection of vulnerable social categories, especially children. Promotion of cultural heritage. Here is included not just the promotion of ‘high’ artistic standards, but also fostering of national production, ensuring public access to major sporting events and the provision of education.

THE IMPACT OF CONVERGENCE The regulatory issues raised by convergence can be divided between those concerned with the regulation of networks and those concerned with the regulation of content. These cannot be entirely separated a) because the content regulation of broadcasting, although its aims are quite distinct, has been based, through licencing, on controlling access to the distribution network and b) because in telecommunications the delivery of the telephone service has not been separated from control and operation of the network. In the developing intelligent network the content of service can depend upon intelligence integrated into the network. As a result, the prospect of convergence has raised two arguments. a) It is argued that the regulation of broadcasting content, in the context of a general tradition that assumes the desirability of freedom of expression, is an historical anomaly which could only be justified on the basis of spectrum scarcity. In the era of digitalization there is no spectrum scarcity. Ergo broadcast content regulation should be dismantled and the provision of all information services should be left to the market, on the model of the free press (and often also of the US 1st. Amendment), governed only by the economic criteria of competition law. Such law would ensure that network control did not erect barriers to entry by either providers or consumers of information services. In short the telecommunications regulatory model should prevail. b) This in its turn leads to the second argument concerning the implications of convergence for telecommunication regulation. This argument turns on one’s judgement of likely future developments. One school argues that digitalization is reinforcing both economies of scale and scope in network provision and the local loop bottleneck problem. It therefore follows, they argue, that increasingly tough sector specific telecommunications regulation will be needed to control potential monopoly rents and to ensure non-discriminatory access to an increasingly essential and monopolized public infrastructure. In opposition another school argues that digitalization, by reducing the cost of transmission and switching capacity, is commoditizing network capacity and increasing competition. That networks will be seeking scarce users rather than the reverse. Thus the regulation of networks, this school argues, can be safely left to competition law. I should stress that, while I believe that there will continue to be

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viable competition to the switched, fixed network from wireless based delivery systems, both for broadcasting services and mobile personal communication services, I am of the former school of thought. That is to say in so far as convergence presents a problem for network regulation it is a problem of reinforced monopoly rather than increased competition.

UNIVERSAL SERVICE A N D PUBLIC SERVICE Those who argue that spectrum scarcity was the only justification for broadcasting content regulation and thus that the telecommunications regulatory model should now prevail see access to the network for both providers and consumers as the problem. This has led to an attempt to equate the Universal Service principle in telecommunications with the Public Service principle in broadcasting. This cannot be done. First, Universal Service has always been more myth than reality in telecommunications. The concept of universal affordable access was invented by Vail, in the particular circumstances of the US, as part of a deal with the US government to preserve and entrench AT&T's monopoly. Geographical universality was never delivered by AT&T in the US and high penetration rates, as in other developed countries, were achieved over a long period as the network rolled out in response to economic growth and the accompanying growth in demand. Affordability has always been meaningless. Tariffs were fixed according to what the market and regulator would bear and to balance supply and demand. In Europe the principle of universal service was not even enunciated and both the growth in penetration and tariffs were governed in general, by the same principles as in the US, with the additional consideration of governments' revenue requirements. In so far as telecommunications was a public service it gave citizens no right to telephone service and merely protected the PTT against civil action by its users. Universal service has been erected into a key principle of telecommunications regulation in Europe in recent years in an attempt to defend monopoly provision. It is assumed that the policies of the incumbent monopolies have been governed by principles of universal service even where penetration levels are relatively low, waiting lists long and tariffs high. It is then argued that this service is only sustainable because of a cross subsidy structure that competition, with its accompanying cream skimming and cherry picking, would make unsustainable. It then follows that, if competition is to be introduced, the incumbent dominant operator's universal service obligations, which usually amount to no more than the right of subscribers to receive service on demand at a 'reasonable' economic cost and at published non-discriminatory tariffs, will incur losses that must be shared, if the playing field is to be level, by all competitors through an access charge system. In fact, as detailed studies in the UK have shown, these losses are, possibly entirely and certainly very largely, non-existent, and can easily be absorbed within the cost of the dominant operator without damage to ~ts competitive position. The economically disadvantaged in our societies are deprived of many goods and services that the majority take for granted. The telephone is less important and they are less deprived of it than many others. However, based upon this mylhical case, it is now widely

argued that the universal service principle needs to be extended to new, wide-band digital services. The first point that needs to be stressed here is that this cannot be defended on the basis of extending a pre-existing historical principle of telecommunications regulation. It may be a justified policy but it is a departure from historical precedent and needs justification on other grounds. Broadly there are two such grounds. First, it can be argued that access to such services is now so essential to full economic and social participation in society that it should be regarded as a basic requirement of citizenship and thus supplied universally at any cost. It should be noted that we do not now argue this in relation to any other good or service, with the possible exception of schooling and minimum health care. Second, it can be argued on economic grounds, either that advanced provision of network access will provide the necessary infrastructural base for the accelerated development of the information service sector, or more generally that such access will make a national economy more productive and competitive than competitor economies which do not provide such access. In both cases what is being demanded is an accelerated development of the network beyond that which the operators would themselves make according to normal network investment criteria and in response to expected demand. In the first case we are concerned with principles of justice and the question is how much it will cost and who pays. In the second case we are concerned with the use of regulation to achieve the goals of national economic policy and planning and the arguments concern the possible effectiveness and cost benefit of such a policy.

PUBLIC SERVICE IN BROADCASTING Let me now turn to the concept of public service as a regulatory principle in broadcasting. This is quite different from universal service in telecommunications. It is true that in most national cases licencing provisions and policy on the allocation of licences was used, more usually implicitly than explicitly, to ensure equal national coverage of the available channels rather than maximizing channel choice for the majority. In those countries where public broadcasting was financed by a licence fee, the universal obligation to pay a standard common fee reinforced this principle. It is also the case that public service broadcasters have taken upon themselves the role of fostering a national culture and a national polity. This role is often given regulatory reinforcement by detailed stipulations as to the coverage of national elections and parliaments, by giving public broadcasters privileged access to major national sporting events and by enforcing 'must carry' rules on cable and satellite providers.

REGULATION FOR CONVERGENCE The issues can be divided into:a) regulation of networks b) regulation of services or content. A key overarching issue is whether a strict regulatory separation between the ownership and operation of networks and the ownership and operation of services over those networks should be enforced,

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REGULATION OF CONVERGED NETVVORKS In the pre-convergence era technologically and functionally distinct networks developed for switched telephony and wireless broadcasting, even where the PTT operated both physical networks. The respective regulatory regimes were built upon this technological distinctiveness. In a converged, digital network environment networks are increasingly neutral as to the nature of the service being carried over them. Thus simple regulatory distinctions between switched, point-to-point versus broadcast or between narrow band and broadband or between cable and over-air delivery can no longer be mapped onto to distinctive characteristics of the underlying network. Thus from the point of view of service providers and users regulation needs to ensure that network owners and operators cannot raise discriminatory barriers to access or to any-to-any interconnectivity and cannot derive excess monopoly rents from network control. From the point of view of the network operator (and I would argue, given the size of the infrastructural investments involved, from the point of view of national and regional economies generally) regulation needs to ensure efficiency can be maximized by the full exploitation of existing economies of scale and scope. These two regulatory goals may well be in conflict and balancing them in a rapidly changing technological environment is not easy. But it seems likely that the eventual solution has to be strict separation of carriage and content. Present attempts to regulate service provision and competition by means of network regulation, whether by placing limits on competition between telephone networks and cable -IV networks or by using broadcast transmission licencing as a tool of content regulation, are both disfunctional for network development and will be increasingly unworkable. The most difficult regulatory issue is whether to place the software required for service configuration, delivery and access (for example signalling and encryption) on the network or service side of the regulatory divide and thus how to regulate these actual and potential barriers to entry, as current regulatory debate over subscription TV encryption systems illustrates. In general, so far as network regulation is concerned, the nature of the desired regulatory structure and the speed with which it needs to be achieved depend on one's judgement on the sustainability of network competition and on the extent of the need to divert user spending on services for network investment. REGULATION OF CONVERGED SERVICES The issues here are :a) whether, in the absence of the spectrum scarcity argument, any regulation can be justified beyond general laws covering pornography, encitement to racial hatred, invasion of privacy, libel etc. b) if they can on what basis they might be defined and enforced. The case for regulation of content rests on two grounds and is not dependent upon the underpinning of spectrum scarcity. First it rests on the notion of publicness and publication - that once an information service is made widely and generally available it ceases to have the status of a mere private transaction, whether commercial or otherwise, between two

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individuals, but becomes a social fact and thus assumes obligations as well as rights which cannot be encompassed in a simple notion of freedom of speech or expression. Secondly it rests on the economic nature of information markets which exhibit particularly virulent forms of market failure due to the novelty of the product, the uncertainty of demand, to the low to zero marginal cost of reproduction and their public good characteristics. The result is that, even if left to competition law, this sector needs particularly vigorous policing to prevent oligopoly control and limitations on both producer and consumer choice. Thirdly it rests on the political and cultural importance of the information sphere and of the centrality, within our tradition of political and social thought, of freedom of expression, and thus of information pluralism, as a crucial foundation of political and cultural democracy. Thus there is a powerful case for the need to override the market in the regulation of this sphere. And even where the market is allowed to operate the history of both the press and the cinema, where questions of spectrum scarcity never arose, attest to the need for regulatory intervention, for instance special control over press mergers, cross ownership rules, requirements to identify the publisher, quotas for cinema exhibition, separation of cinema production and distribution from exhibition. Thus while almost everyone would agree that a largely unregulated information market has a major - perhaps the major - role to play, few would seriously argue that an unregulated market will produce a desirable, let alone an optimal, solution. However, while regulation may be both defensible and desirable, the question remains whether any such regulation is feasible once the convenient enforcement tool of licenced access to spectrum is no longer available. NEGATIVE AND POSITIVE REGULATION Regulation or policy intervention can be either negative imposing obligations on service providers - or positive - the public provision of services. To take an example from another field, transport. One can decide that the unregulated market does not provide a socially optimal transport system and one can respond by either regulating private providers or/and by providing publicly financed public transport, The same is true in the information services sector. NEGATIVE REGULATION It is clearly impossible, and undesirable, to police, for regulatory purposes, as the Internet is already amply demonstrating, the total flow of bits over digital networks between the providers and consumers of information services. At the same time it is politically naive, as both the current fuss about pornography and racial incitement on the Internet and the introduction of the home censorship chip for TV in the US demonstrate, to believe that complete libertarianism will be the rule, whatever barriers to investment this may raise. Thus we need a regulatory system that delimits its field of operation to those services which are of sufficient publicness for obligations to be justifiably imposed upon their producers. When there was a clear and wide technological distinction between broadcasting, available to all with minimum barriers to access, and thus with

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a massive publicness, on the one hand, and telephone conversations over switched, point-to-point, networks, which were clearly private on the other matters were easy. Now we are faced with a broad spectrum between the two. In my view there should be two tests of publicness - the first would be any service intended for general reception, whether encrypted or not, whether addressed or not. This would cover any service which was available, on whatever terms, to anyone who wished to access it and which was made available in the same form to more than one subscriber. Thus it would for instance cover video-on-demand. There would undoubtedly be difficult border line cases for the courts or regulatory authorities to deal with between public services and genuine closed user group services, but such problems are familiar in the field of anti-discrimination law as regards private clubs. The second test would relate to the extent of this publicness and would be based either on a threshold number of subscribers within a given market or on market share. Regulated services would need to satisfy both definitions of publicness. It would then be for the regulations to define the specific markets to be used, the scale thresholds and measures to be used and the appropriate content regulations to be applied. For instance it would clearly be absurd for narrow cast, specialized services to meet broad programme balance requirements. On the other hand political balance requirements could reasonably be imposed on all news services and, as with the newspaper and magazine distribution system in France, video-on-demand services could have an imposed requirement to offer a full range of available videos or a quota of national or European !oroduction.

POSITIVE REG ULATION While a Universal Service policy may provide universal public access to services over converged digital networks, they will do nothing to ensure that an optimal range of services is actually available. A Universal service policy for classic telecommunication services, moreover, does not just provide network access; it provides the content of the service i.e. dial tone. It can be easily adapted to provide other aspects of the services such as

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itemized billing, call forward, caller line identification etc. With information content services the situation is clearly very different. Other steps need to be taken to ensure that the services available are of sufficient range and quality to meet society's legitimate information needs and demands. At present it is the case widely in broadcasting and in some countries also in the fields of film and newspapers, that public funding is made available, to meet these objectives. To ensure that the political and cultural objectives of pluralism are achieved and to support and foster the cultural heritage there will continue to be a need for the provision of 'public services', as is taken for granted in the fields of education and 'high culture' (museums etc.), as well as health and transport. Convergence must not be used as an excuse to dismantle such services and no new regulatory regime should inhibit their development. Politically any democracy needs to ensure that citizens have access to the fullest possible range of relevant information and debate and that the relationship between public media and the process of politics is such as to ensure a fair and open competition for votes. An unregulated information market cannot be guaranteed, to say the least, to provide these conditions. Culturally our cultural heritage is both our social memory and the seed bed for future developments. No single generation has the right, whether through the exercise of consumer choice or in other ways, whether consciously or unconsciously, to stop that memory being handed on to future generations. Just as with bio-diversity, nurturing the seeds of future cultural choices and developments are not safely left to market forces. If we wish to use the model of the Universal Service Fund in telecommunications there is a strong case for constructing a regulatory system which allows for a levy on all service providers to fund the public service providers to fill the gaps left by the operations of the market and to act as providers of last resort.

Professor Nicholas Garnham, Centre for Communication and Information Studies, University of Westminster, UK.

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INTELLECTUAL PROPERTY RIGHTS AND TREATMENT OF MEDIA Convergence between multimedia and telecommunications is based on the development of digital technologies allowing delivery of content through information channels which until now were not strictly related. These developments affect Intellectual Property Rights (IPR) in different manners. This paper aims to track specific problems in order to make an inventory of the main issues at stake.

CO NTENT DELIVERY, B R OA D C A ST I N G A N D REPRODUCTION In most States and in the international conventions on copyright protection a distinction is made between performance and reproduction of a protected work. In addition, different rights and exemptions are granted in respect of

literary works or audiovisual works. Generally speaking, a different set of exemptions applies to the two categories. In addition, for the latter category, the degree of protection in respect of performance varies in accordance with the medium used. Conventionally, except for satellite broadcasting, the law on copyright has a territorial application. The individuation of rights is made in accordance with the national law of the place where reproduction or diffusion are operated. In many national systems and in international conventions the protection of rights on performance and diffusion has evolved focusing on specific technologies: cinema, television, radio, phonographic records. Convergence has a different approach, as the technology involved sets up a digital transportation layer which may be

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