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Telecommunications regulation and cable TV infrastructures in the European union
Telecommunications
Policy 1994 18 (5) 367-377
Telecommunications regulation and cable TV infrastructures in the European Union Current policies and future issues
Marcel Haag and Hans Schoof
The present regulatory framework established at European Community level does not yet address the issues of telscommunlcatlon services provided over cable TV networks or broadcast senflces provlded over regular telecommunication networks. The convergence of communlcatlons technologies, and In particular the Integration of cable TV and telecommunlcatlons Infrastructures, Is, however, at the heart of the future Information society. This article concludes that the establishment of an approprlate European regulatory tnmework, which takes account of this phenomenon, Is urgently required. The meln Issues to be addressed by such a framework Include cross-ownership and competition, lnterconnectlon of marks, regulatlon of service level and equal access to third-country markets. The authors can be contacted at DG XIII of the European Commission, Rue de la Loi 200, B-1049 Brussels, Belgium. Marcel Haag (Tel: + 32 2 29 66 605; fax: + 32 2 29 61 727), Hans Schoof (Tel: +32 2 29 66 610; fax: + 32 2 29 66 395). The views expressed in this article are solely those of the authors and do not in any way represent an official Commission point of view. ‘The only EFTA country which did not join the EEA is Switzerland.
0308-5961/94/050367-11 0
Over the last decade a comprehensive regulatory framework has been established at the level of the European Community with regard to telecommunication services provided over dedicated telecommunications networks. The scope of this framework covers in principle the world’s largest internal market, the European Economic Area (EEA), which comprises the 12 member states of the European Union as well as six EFTA countries (Austria, Finland, Norway, Sweden, Iceland and Liechtenstein).’ On the basis of the European Commission’s review of the situation in the European telecommunication sector in 1992 and 1993 the European Community has now set the agenda for the further development of the existing framework until the end of the decade. One of the major phenomena which will have to be addressed in this process is the current market- and technology-driven worldwide trend towards the convergence of communication services and networks. The creation of an appropriate regulatory framework will be key to enabling the European societies to fully benefit from these developments. A field in which the effects of convergence are already having an important impact in a number of industrialized countries is the area of cable television (CATV) networks. Due to technological developments, it now begins to become possible to provide similar services over both CATV and telecommunications infrastructures. The use of CATV infrastructure allows not only the provision of traditional telecommunication services, including voice telephony, but also the offer of new multimedia services which will be at the very heart of the evolving information society. This article presents a short overview of existing legislation and policies in the European Union in the areas of telecommunications and
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Fixed
Satellite
Mobile/personal
,
Equipment Services
Figure 1. Development of EC telecommunications policy.
Infrastructure I
which are relevant in the context of the convergence of CATV and telecommunications infrastructures. Based on this overview the article discusses the need for a regulatory framework for CATV and telecommunications infrastructure at Community level and identifies issues to be addressed in such a framework. broadcasting
Current regulation in the European Community Telecommunications policies
‘Towards a Dynamic European Economy: Green Paper on the Development of the Common ‘Market for Tekxo~munications Services and Eouioment. COM 187) 290 final, 30 June 19ki. ’ ’ ’ 3Towards Europe-wide Systems and Services: Green Paper on a Common Approach in the Field of Satellite Communications in the European Community, COM (90) 490 final, 20 November 1990. “Towards the Personal Communications Environment: Green Paper on a Common Approach in the Field of Mobile and Personal Communications in the European Community, COM (94) 15 final, 27 April 1994. %f in particular Council Directive of 28 June 1990 on the Establishment of the Internal Markef for Telecommunication Services Through the Implementation of Open Network Provision (90/387/EEC), OJ No L 192, 24 July 1990, p 1; Council Directive of 5 June 7992 on the Applkxtion of Open Network Provision to Leased Lines (92/44/EEC), OJ No L 185, 19 June 1992, p 27; Proposal for a Council Directive on the Application of Open Nehvork Provision(ONP) to Voice Telephony, COM (92) 247, 27 August 1992.
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In its Green Paper on telecommunication services and equipment of 1987* the European Commission submitted the concept for a first general framework of a telecommunications policy at Community level. The Green Paper focused on telecommunication services provided over the public fixed telecommunications network and on telecommunications equipment connected to the public fixed network. The areas of mobile communications and satellite communications were explicitly set aside for consideration at a later stage. The broadcasting sector was also not considered in this approach. In a second step Community telecommunications policy was extended to satellite communications on the basis of the Satellite Green Paper of 1990 in which the Commission proposed to apply the regulatory principles set out in its Green Paper of 1987 to the satellite sector.3 Recently the Commission also submitted a Green Paper on mobile and personal communications4 which sets out the measures deemed necessary to include mobile and personal communications fully in the Community policy on telecommunications. (Figure 1 illustrates the step-by-step development of EC telecommunications policy in these terms.) While with regard to satellite and mobile communications elements of infrastructure regulation were included in the policy approach, the regulation of fixed infrastructures remained largely outside the scope of Community policy, as only certain aspects of access to and the provision of public fixed infrastructures are addressed in measures on Open Network Provision (ONP).5 The main thrust of Community telecommunications regulatory policy concerned the liberalization and, where necessary for the creation of a single market, the harmonization of the equipment and services sectors, which in Europe had thus far been provided under exclusive rights of state-owned PlTs. However, the liberalization measures temporarily excluded public voice telephony, for which member states are currently still allowed to maintain exclusive or special rights. Also for the provision of the basic telecommunications infrastructure the maintenance of special or exclusive rights by the member states was still accepted. Member states have implemented the Community regulatory framework and complemented it with national regulatory measures. With regard to liberalization, however, none of the member states, with Telecommunications
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‘Commission of the European Communities, 1992 Review of the Situation in the Telecommunications Services Sector, SEC (92) 1048 final, 21 October 1992; and Cctnmunication to the Council and the European Parliament on the Consultation on the Review of the Situation in the Te/ecommunications Services Sector, COM (93) 159 final, 28 April 1993. 7Councii Resolution of 22 Julv 1993 on the Review of the Situation in ihe Tekxommunications Sector and the Need for Futther Development in that Market, OJ No C 213, 8 August 1993, p 1. ‘Cf Commission communication of 28 April 1993, op tit, Ref 5, No 55. At the Council meeting of 18 June 1993 the ministers of France, Germany, the Netherlands and the UK supported the Commission’s intention to undertake studies in this area; cf Bundesrninisterium fiir Post und Telekommunikation, ‘Liberalisierung und Harmonisierung schreiten voran’, PostPo/itischeInformation, July 1993, p If. ‘Cse 155ff3 (Sacchi), ECR 1974,490. l”Bu//etin of the EC, Suppl 5/1984. ’ ’ Council Directive of 3 October 7989 on the Coordination of Certain Provisions Laid Down by Law, Regulation of Administrative A&km in Member States Concerning the Pursuit of Television Broadcasting Activities (98/552/EEC), OJ No L 298, 17 October 1989, p 23. ‘2Council Directive of 27 September 1993 on the coordination of Certain Rules Con-
cerning Copyright and Rights Related to Copyright Applicable to Satellite Broadcasting and Cable Retransmission (93/83/ EEC), OJ No L 248,8 October 1993, p 15. 13Cffor example Council Resolution bf 22 Jutv 1993 on the Develooment of Technolo& and Standards in’the Field of Adv%ced Television Standards, OJ C 209, 3 Awust 1993, P 1: Council Decision of 22 Ju& 1993 of+ an Action Plan for the Introductibn of Advanced Television Services in Eu~pe (93/424/EEC), OJ No L 198, 5 August 1993, p 48; Commission of the European Communities, Digital Video Brvadcasting: A Framework for Community Policy, Communication from the Commission to the Council and the European Parliament, COM (93) 557, 17 November 1993; and Commission Proposal for a Directive of the European Parliament and the Council on the Use of Standards for the Transmission of Television Standards, COM (93) 558 final - COD 478,16 Novem-
ber 1993. 14Green Paper on Pluralism and Media Concentration in the lntemal Market, COM (92) 480 final, 23 December 1992.
the notable exception of the UK, went substantially beyond the minimum requirements set out by Community law. Thus in this respecct the national regulation in the member states is a result of the achievements at Community level. In addition, a number of member states have recently begun to consider the corporatization and privatization of their public telecommunications operators. Although this reorganization of the operators is not required by Community law, it is increasingly felt that privatized telecommunications operators are more appropriate in a fully liberalized environment. On the basis of an examination of the situation in the telecommunication services sector by the European Commission, the so-called ‘1992 telecommunications review’,6 the Council of the European Union agreed politically on an action plan for the further development of the Community regulatory framework for the telecommunication sector.7 This action plan provides in particular for: the full liberalization of public voice telephony in the Community until 1 January 1998 at the latest; the submission of a Green Paper on the future regulation of telecommunications infrastructures in the Community by the European Commission; the reorientation of the existing ONP framework with regard to future requirements and the establishment of a regulatory framework for interconnection. In addition to the agenda set out by the Council the Commission proposed to study in 1994 the rapid opening of alternative infrastructures and CATV infrastructures for the provision of telecommunication services already liberalized.* Broadcasting
policies
Although the principle that broadcasting falls under the freedom to provide services as provided for in the EC Treaty was confirmed by the European Court of Justice as early as 1974,9 the Community was relatively cautious in adopting a Community policy in the area of broadcasting. On the basis of the Commission’s Green Paper on ‘television without frontiers’ of 1984l’ the Community adopted a number of directives aiming at the harmonization of certain aspects of broadcasting. In particular, Directive 89/552/EEC on ‘television without frontiers’ set out a number of regulatory positions in order to establish a regulatory environment conducive to the competitiveness of the audiovisual industry. I1 This directive was complemented with regard to copyright and related rights in the field of satellite broadcasting and cable retransmission in a directive of 27 September 1993.l* With regard to broadcasting technologies the Community has also been taking action to promote the development and Europe-wide introduction of digital television.13 Only recently the Commission has submitted a Communication on media concentration14 which also deals with concentration processes in the field of broadcasting and has launched a broad debate on the issue. Thus for the time being only marginal aspects of CATV provision are regulated by the Community. However, although there is no overall regulatory framework at the European level, many European countries do have national policies in place with regard to CATV infrastructures and the services that are allowed to be offered via such infrastructures.
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Table 1. CAlV penetratlon rate and number ot subscribers, 31 December 1992.
Sources: ECCA, EC study, CIT research.
Country
Penetration rate (%)
Subscribers (‘000)
Belgium Denmark France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain UK
91 55 4.5 46 No CATV 34 No CA-I-V 91 06 No CATV 1 2.5
3 509 1 259 1 056 15 323
Austria Finland Norway Sweden Switzerland
20 37 32 47 68
365 100 5350 122 500 800 810 564 1800 2000
National policies regarding CATV European countries
15According to a recent Deutsche Telekom press release, in January 1994 it had 13.5 million subscribers, which would make it larger than the US firm TCI, which has 11.5 million subscribers. ‘?n March 1994 Coditel, the CATV operator in Brussels, offered the following programmes: the Belaian channels TV 1, TV 2, VTM, RTBF, AtiTE/21, Sports 21, RTLTVI; the Dutch channels NL 1,2 and 3; the German channels ARD and ZDF; the French channels FTl , France 2, France 3; the UK channels BBC 1 and 2: the Italian channel RAI Uno; the Spanish channel TVE; and the specific satellite channels Euronews, Super Channel, MTV, CNN, Tv5, Eurosport, Filmnet and Canal +. In addition, one Brussels local TV station is broadcast over the network.
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Although the penetration of CATV is very high in some of the smaller countries in Europe, the overall rate of penetration is relatively low (see Table 1). The penetration rate of CATV was around 17% in 1992 in the Community as a whole. This compares to approximately 50% for the USA and approximately 20% for Japan. CATV first took off in Europe in those countries where demand for additional TV services matched supply: in smaller multilingual countries, where channels from neighbouring countries could be easily picked up at the head-ends of CATV facilities. For this reason it was especially in the Benelux countries, Denmark and Switzerland where CATV was particularly successful in the early years of European CATV. In recent years the top position in terms of absolute number of subscribers has been taken by Germany where Deutsche Telekom embarked on a major cabling programme in the late 1980s. The German telecommunications operator now even has the largest number of subscribers in the world.15 A typical European CATV network may offer around 30 TV channels to its subscribers. The programmes on offer consist basically of retransmissions of terrestrial channels from neighbouring countries or of satellite TV channels.16 Most countries have some form of must-carry regulation, stipulating a minimum package of (national) channels that must be offered. The remaining channels on offer are subject to commercial negotiations between the original broadcasters and the CATV stations. Fees are generally not regulated in Europe, and may vary widely. The owners of the CATV networks can be classified into three main categories: l l l
public utilities; national telecommunications other companies.
operators;
In the Netherlands, Belgium and (to an extent) France, it is often public utilities, in particular the energy companies, that are involved in CATV. On the other hand in Germany, France and the Netherlands (around 20% of the NL subscriber base) the national telecommunications Telecommunications
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Telecommunications Tabie 2. invoivemeni
ol
telscommunicstions
operatom in CAN. No
Belgium Denmark France Germany Ireland Luxembourg Netherlands Spain UK
Dominant Substantial Dominant Substantial No Substantial Yes Limited
Rnland Norway Sweden Switzerland
Substantial Substantial Dominant No
SOURXS:EC study, CIT research.
“‘According to the Cable Television Assoctation (CTA) in their publication Cable 7V and Telecommunications Yearbook 1993, d the 127 potential operating franchises in the UK 77 are controlled by US companies, 35 by Canadian companies, five by a French company, four by UK companies and six by UK/third-country joint ventures. ‘“Unitad States v American Telegraph and Telephone Co, 552F Supp 131 (1982). ‘%f MFJ: ‘no BOC shall, directly or through any affiliated enterprise . . . provlde . . . information services’ (p 227); and ‘Information service means the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information which may be conveyed via telecommunications, except that such service does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service’ (p 229).
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operators play an important role in CATV. Other companies involved in CATV in Europe are manufacturers, such as for instance Philips, which is participating in CATV networks throughout Europe, or third-country telecommunications operators, such as the Bell operating companies active in the UK.l’ Particularly in continental Europe, it is not exceptional that the national telecommunications operator has a major stake in CATV development in its country (see Table 2). In several European countries it was until recently part of government policy to encourage the integration of the separate CATV and telecommunication networks, or at least to bring the two networks under the control of one entity with an eye to further physical integration. This involvement of telecommunications operators in continental Europe is in sharp contrast to the situation in the UK and the USA where regulatory measures have been taken to avoid entry from telecommunications operators in the CATV industry. In these two countries regulatory barriers have not only been erected in relation to cross-ownership of programme and infrastructure activities, but also in relation to cross-ownership of different infrastructures (CATV and telecommunications). With regard to telecommunication services over CATV networks, in most countries it is not permitted to offer two-way services (see Table 3). Of the countries considered in this article, only the UK, Sweden and Finland allow the provision of all services, including voice. The Netherlands and France allow the provision of two-way data services. In all other countries two-way services are not allowed. USA
Cable TV started in the USA in the early 1950s when it came to be used in mountainous areas as a means to overcome difficulties in receiving TV programmes broadcast over the air. By the 1990s CATV had reached a penetration of around 50% of all TV households. The biggest CATV companies are TCI, with 11.5 million households connected, and Time Warner, with more than 7 million subscribers. In recent years three major regulatory milestones have influenced the regulatory environment for CATV and its relation to telecommunications: the Modification of Final Judgment (MFJ),18 the 1984 Cable Act and the 1992 reregulation of the CATV industry. The MFJ limited the sectors in which the local exchange carriers (LECs) could expand.” Part of the 1982 Consent Decree was that the parties agreed that the regional Bell operating companies (BOCs)
Table 3.
Source: EC study.
regulation and cable TV in the European
Permission to otter services other than audiovisual setvlces over
CATV
networks.
One way
Two way
Belgium Denmark France Germany Ireland Luxembourg Netherlands Spain UK
Yes No legal provision Yes No No legal provision No legal provision Yes Yes Yes
No No legal provision irked (data only)
Yes
Finland Norway Sweden Switzerland
Yes No Yes No
Yes No Yes No
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No legal provision No legal provision @ted (data only)
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would be prohibited from providing information services and participating in any non-telecommunications industry. So far, it has prevented them from entering the CATV business directly in their territory. The 1984 Cable Act freed the CATV industry from local rate regulation, and established a framework within which the CATV industry was protected from the regular telecommunications companies. ” The Act also prevents broadcast stations from owning CATV networks. 21 Interestingly, it does allow major ‘programme production companies’ such as Time Warner to operate CATV networks. During the 1980s and early 1990s the CATV companies developed into factual monopoly suppliers with full control over their own price setting. Deeming that some of these rates were excessive, Congress decided to reregulate the cable industry, and adopted legislation to curtail the freedom of the CATV industry with regard to setting its own fees. Although the 1980s witnessed a general deregulation of the telecommunications industry, a more prudent or protective approach was thus pursued with regard to the cable industry. It would seem that the cable operators have considerably improved their competitive position in recent years. Recent business movements seem to suggest that CATV companies may be attractive partners for telecommunications carriers to cooperate with in order to establish a strong position in the merging markets of telecommunications and CATV. Also in regulatory terms, signals seem to indicate that the regulatory framework may be adjusted to a new era where the boundaries between broadcasting and telecommunications begin to blur. In the discussion on the National Information Infrastructure (NII) initiative launched by the Clinton-Gore administration, arguments are being advanced for the (partial) removal of barriers between the respective areas of common carriers and CATV companies.22 In addition, new legislation has been proposed in this regard, notably the Markey Bill. The Clinton administration also took a positive stance concerning the easing of restrictive entry barriers in the January 1994 White Paper on Communications Act Reforms, which states that the ‘cable-telephony company crossownership restriction . . . is an unnecessary and artificial barrier to competition in the delivery of video programming to American consumers and to investment in advanced local infrastructure’. The administration also concludes in the same White Paper, however, that certain safeguards are required in order ‘to ensure that cable firms and telephone companies do not harm consumers or competition in providing these services’. z”Section 613 of the Cable Act stipulates that is it unlawful, inter a/k, ‘for any common carrier to provide video programming directly to subscribers in its telephone service area’. 21By stipulating in Section 613 that ‘It shall be unlawful for any person to be a cable operator if such a person owns or controls the licensee of a television broadcast station’ in a relevant coverage area. TRe National information Infrastructure: Agenda for Action, US Department of Commerce, Washington, DC, 1993.
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Japan
In Japan the operation of CATV networks started as a means of providing TV services to remote areas with reception difficulties. Under the ‘universal service’ obligation of the national broadcaster, NHK, that requires it to offer TV to the whole country, NHK originally had some involvement in CATV. In the 1970s and 1980s other (private) companies also came to be involved in CATV. In the early 1990s the penetration of CATV in Japan was around 20%. The national carrier, NIT, is hardly active in this area, although it does have the ambition to offer both telecommunications and television
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services over its network. Already by 1979 NIT had launched its great vision of an integrated network, allowing for the integration of video and voice/data services.23 In the mid-1980s new legislation was adopted that deregulated the telecommunication sector by allowing competition in both infrastructures and services (Type I and Type II carriers). The provision of certain interactive services over CATV networks is in principle allowed, but this hardly ever happens. NTT is not allowed to enter the CATV business, although it is active in experiments.24 However, in Japan too these issues are being reconsidered in the light of the possible merits that an adjusted regulatory framework may have for the optimal exploitation of the economic and social benefits that convergence of media may bring.
Towards a new regulatory framework in the Community? Allowing competition between networks
The basic regulatory principle governing fixed networks in the Community is to allow, for the time being, monopoly provision of infrastructure. In satellites and mobile communications, however, the Community is already fostering infrastructural competition. While reserving a comprehensive discussion on the issue of infrastructure liberalization for the Green Paper on infrastructures to be published at a later stage, the Commission has already argued in favour of allowing the provision of already liberalized services over alternative infrastructures, including CATV networks.25 An argument in favour of competition between cable networks and regular telecommunications networks is that this may lead to an improvement in the supply of telecommunication services in the Community, be it by providing qualitatively better services, by developing entirely new services or by delivering the same services at a lower price. The effects of liberalization must be carefully assessed, taking into account inter ah the possible impact on existing carriers, but also on the overall economy. Even if a decision to allow competition between cable TV networks and regular telecommunications networks were to be taken in principle, there remain many issues to be addressed in regulatory terms. Impact scenarios 23Thethen Vice President of NTT, Yasusada Kitahara, set out the general outline for this plan in his book lnformaticn Network Sptem, Tokyo, 1983. ’ According to Article 1 of the Nippon Denshin Denwa Kabushiki Kaisha Law (‘NlT Law’), the purpose of NTT is to ‘operate domestic telecommunications business’. The Telecommunications Business Law, adopted at the same time as the NTT Law, exludes from the definition of telecommunications business ‘business related to wire radio broadcasting [and to] wire television broadcast service’. 25Ccmmunication to Council and European Parliament on the Consultation on the Review of the Situation in the Telecommunications Services Sectors, COM (93) 159 final, No 55 B3(A), 28 April 1983.
Removing the separation of CATV and telecommunications infrastructure provision will have a substantial impact on the competitive position of the different players - national telecommunications operators, CATV operators that are not telecommunications operators, thirdcountry telecommunications operators and other industry players. This impact is likely to be quite different in countries with an already high rate of penetration of CATV from that in countries with a low penetration. In European countries with an already high penetration of CATV, there are mainly national telecommunications operators and (public utility type) CATV companies involved. The absence of safeguard measures can therefore easily result in reinforcing the dominance of telecommunications operators in infrastructure provision. With regard to existing networks, it is mainly in Belgium and the
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Netherlands that parties other than telecommunications operators play a significant role. However, these players are not commercial companies, and a comparison of the strengths and weaknesses of these parties in comparison to the national telecommunications operators might lead to some concern about the viability of real competition. In countries with a low rate of penetration new entrants may enter and establish a position in the CATV/telecommunications market. However, in these countries the new entrants would probably find incumbent carriers in their way, and it will take a substantial amount of capital, telecommunications know-how and courage to compete with them. It is not unlikely that this is a major reason why most CATV networks in the UK are owned by non-UK companies. A plea for Community action
Assuming that competition will be introduced between CATV and telecommunications infrastructures, it will not be sufficient to remove regulatory barriers if the full benefits of competition are to be reaped. Even in countries that are generally seen as the most liberal, certain safeguards have been established in the interests of consumers and competition. A number of aspects relevant in this respect fall under Community competence. The Community will also have to consider certain precautionary steps when competition between CATV and telecommunications infrastructures is to be allowed. The main considerations in this area would have to relate to: ensuring the application of the Treaty competition rules; establishing an internal market for advanced communication services; 0 creating an appropriate framework for a trans-European communications infrastructure.
l
l
Following the introduction of competition it will be both inevitable and necessary to create a regulatory framework in the European Union which addresses the provision of television and telecommunication services over both CATV and telecommunications infrastructures. Such a framework is inevitable because, if the previously separated services and infrastructures merge without the regulatory framework being adjusted accordingly, there is a danger that Community regulation of telecommunications may affect national CATV and broadcasting policies unintentionally and with undesirable consequences. An overall and comprehensive framework which takes account of the effects of this convergence is therefore required. A regulatory framework is also necessary because policy development in Europe must not lag behind at a time when nations around the world are developing into ‘information societies’, and are developing appropriate regulatory regimes. In this situation Europe must establish a framework that will enable European consumers and industries to benefit from the ‘multimedia’ future. Issues for regulation Cross-ownership, concentration and competition. Allowing CATV and telecommunications operators to enter each other’s area may, together with the removal of other regulatory barriers, lead to one party owning both networks, and possibly even being the dominant provider of TV and telecommunication services. In the USA and in the UK regulatory
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barriers have been created to avoid this situation and to safeguard the survival of an independent CATV sector. In most of the continental part of Europe such barriers currently do not exist. Opening CATV networks for the provision of telecommunication services clearly creates more competition in telecommunications if the cable network operator, as in the case of the UK, is not at the same time the dominant telecommunications network operator. Where, as in most countries of the European Union, the incumbent telecommunications operator is at the same time directly or indirectly operating the CATV networks, the immediate competitive effects of opening up the cable networks will be less important. This raises the question whether telecommunications operators, in particular dominant operators, should in the future be allowed to operate or to continue to operate their own cable networks. While excluding telecommunications operators from CATV network operation would increase competition, it could on the other hand considerably slow down the current process of integration of networks and services and related market developments. If telecommunications operators are not to be excluded from the provision of CATV networks other measures encouraging competition will have to be considered. These include inter aliu the questions of allowing the competitive provision of telecommunications and CATV infrastructures and the access of third parties to existing CATV infrastructures. The creation of new types of services to be provided over the CATV network also raises questions with regard to the vertical integration in the sector. In countries where the CATV networks are opened for the provision of new services the well-established principle of the separation of conduit and content is challenged by the undertakings involved and also by the services themselves for which the distinction between conduit functions and content become increasingly difficult. The implementation of the principle of separation of conduit and content in its current form will have to be reconsidered in order to avoid unwelcome economic and social effects and risks of concentration and vertical integration while at the same time allowing new services to emerge.
2sProposal for a Council Directive on the Application of Open Network Provision (ONP) to Voice Telephony, COM (92) 247, 27 August 1992. 27cOmmunication and Proposal for a Council Resolution on Universal Service Principles in the Telecommunications Sector, COM (93) 543.
Telecommunications
Interconnection. In a situation where different networks are offering similar services, interconnection becomes a major issue. The proposed ONP Voice Telephony Directive addresses interconnection in relation to the provision of telecommunication services over the public teleThe importance of elaborating the concept of interphone network.26 connection has also been stressed in the European Commission’s communication on universal service .27 In the UK, at present the only country in the Community where there is competition at fixed network level, the interconnect negotiations are a matter for the parties concerned, and only come under scrutiny of the regulator when the commercial negotiations fail to result in an interconnect arrangement that is satisfactory to both parties. The main argument is on the ‘access deficit’, the contribution that the incumbent carrier may (or may not) expect from the connecting party in order to fund its uneconomic universal service obligation. In the area of cable television, commercial access arrangements in fact rule the relation between satellite or terrestrial channels and CATV networks. Here it is a question of market power, where in the start-up phase of a new channel the channel must pay the CATV network in order to be retransmitted. In a later phase, assuming that the channel is
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successful, the roles change, and the CATV network may be forced to pay for having the channel on its network. A review of interconnect issues, in particular in relation to the provision of both television and telecommunication services over any infrastructure, would seem to be required in order to establish an appropriate framework at Community level. Regulation of service level. With regard to telecommunication
services provided over the public telecommunications infrastructure, at Community level the ONP framework is in place. This framework sets levels for the provision of infrastructure services concerning technical parameters, tariffs and user conditions. The ONP rules must be developed further with a view to including CATV networks used for telecommunication services. In this context, in particular, the open and non-discriminatory access of telecommunication service providers to CATV networks should be addressed. In addition, CATV networks will have to be made subject to an appropriate set of rules ensuring the protection of personal data, and privacy, as soon as these networks are opened for the provision of two-way services, including multimedia. As regards the diffusion of television programmes via CATV networks, many countries apply specific regulations to the service level. As to the selection of programme channels, for instance, most countries employ a system of ‘must carry’ rules resulting from national broadcast policies. Also, with regard to fees for the provision of services, specific regulation may be in place, although this is certainly not the case in all countries. Moreover, the notion of universal service appears, for the time being, to be lacking in the CATV domain. The ECCA (European Association of Cable Companies) focuses its interest on only the 70% of ‘economically accessible homes’ in Europe, and in so doing excludes the remaining 30% from the basic CATV service. Nevertheless, concerning the provision of broadcast services, a universal service notion exists in certain countries. NHK, for example, has a legal obligation to provide its broadcast service to 100% of the population in Japan. This was in fact one of the main arguments for the company to invest (modestly) in CATV systems, and later, in the early 1980s in satellite broadcasting. When the broadband CATV infrastructure becomes a major element of the realization of the information society, the extension of the concept of universal service to these networks has to be considered. A Community framework should address both the access, or the right of access, of service providers to the network(s), as well as the access of users to the services. In addition, the expansion of its scope should be considered in order to encompass the transmission of both television and telecommunication services over any infrastructure. Equal access to third-country markets. With regard to the provision of
telecommunication services, there is currently no specific Community legislation in place restricting the access of third-country service providers. The actual ownership of infrastructures is for the time being outside the scope of specific Community legislation. Nevertheless legal and/or factual barriers to investments by third-country companies into CATV or traditional telecommunications networks currently exist in most 376
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countries, both inside and outside the Community. In establishing a regulatory framework for cable networks the Community would have to ensure that European undertakings have equivalent access to the CATV networks sector in third countries.
Conclusions The present regulatory framework established at Community level does not yet address the issues of telecommunication services provided over CATV networks or broadcast services provided over regular telecommunications networks. In different regions of the world different regulatory regimes are in place: some favour protective measures for the CATV networks, while allowing competition; others limit competition and aim for control of CATV and telecommunications networks in the hands of one entity. In particular, there would seem to be a difference between the US approach and that in mainland Europe. Whereas in the USA, after a period of separation of CATV and telecommunications infrastructure, there are now moves to relax this strict separation with a view to new market requirements, in many continental European countries the integration of CATV and telecommunications networks has already been under consideration for some time for principally technical reasons. The European sector will now have to develop a market vision for the profitable use of integrated networks. The convergence of communications technologies, and in particular the integration of CATV and telecommunications infrastructures, is at the heart of the future information society. The establishment of an appropriate European regulatory framework which takes account of this phenomenon is urgently required.
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Telecommunications regulation and cable TV infrastructures in the European Union Current policies and future issues
Marcel Haag and Hans Schoof
The present regulatory framework established at European Community level does not yet address the issues of telscommunlcatlon services provided over cable TV networks or broadcast senflces provlded over regular telecommunication networks. The convergence of communlcatlons technologies, and In particular the Integration of cable TV and telecommunlcatlons Infrastructures, Is, however, at the heart of the future Information society. This article concludes that the establishment of an approprlate European regulatory tnmework, which takes account of this phenomenon, Is urgently required. The meln Issues to be addressed by such a framework Include cross-ownership and competition, lnterconnectlon of marks, regulatlon of service level and equal access to third-country markets. The authors can be contacted at DG XIII of the European Commission, Rue de la Loi 200, B-1049 Brussels, Belgium. Marcel Haag (Tel: + 32 2 29 66 605; fax: + 32 2 29 61 727), Hans Schoof (Tel: +32 2 29 66 610; fax: + 32 2 29 66 395). The views expressed in this article are solely those of the authors and do not in any way represent an official Commission point of view. ‘The only EFTA country which did not join the EEA is Switzerland.
0308-5961/94/050367-11 0
Over the last decade a comprehensive regulatory framework has been established at the level of the European Community with regard to telecommunication services provided over dedicated telecommunications networks. The scope of this framework covers in principle the world’s largest internal market, the European Economic Area (EEA), which comprises the 12 member states of the European Union as well as six EFTA countries (Austria, Finland, Norway, Sweden, Iceland and Liechtenstein).’ On the basis of the European Commission’s review of the situation in the European telecommunication sector in 1992 and 1993 the European Community has now set the agenda for the further development of the existing framework until the end of the decade. One of the major phenomena which will have to be addressed in this process is the current market- and technology-driven worldwide trend towards the convergence of communication services and networks. The creation of an appropriate regulatory framework will be key to enabling the European societies to fully benefit from these developments. A field in which the effects of convergence are already having an important impact in a number of industrialized countries is the area of cable television (CATV) networks. Due to technological developments, it now begins to become possible to provide similar services over both CATV and telecommunications infrastructures. The use of CATV infrastructure allows not only the provision of traditional telecommunication services, including voice telephony, but also the offer of new multimedia services which will be at the very heart of the evolving information society. This article presents a short overview of existing legislation and policies in the European Union in the areas of telecommunications and
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Fixed
Satellite
Mobile/personal
,
Equipment Services
Figure 1. Development of EC telecommunications policy.
Infrastructure I
which are relevant in the context of the convergence of CATV and telecommunications infrastructures. Based on this overview the article discusses the need for a regulatory framework for CATV and telecommunications infrastructure at Community level and identifies issues to be addressed in such a framework. broadcasting
Current regulation in the European Community Telecommunications policies
‘Towards a Dynamic European Economy: Green Paper on the Development of the Common ‘Market for Tekxo~munications Services and Eouioment. COM 187) 290 final, 30 June 19ki. ’ ’ ’ 3Towards Europe-wide Systems and Services: Green Paper on a Common Approach in the Field of Satellite Communications in the European Community, COM (90) 490 final, 20 November 1990. “Towards the Personal Communications Environment: Green Paper on a Common Approach in the Field of Mobile and Personal Communications in the European Community, COM (94) 15 final, 27 April 1994. %f in particular Council Directive of 28 June 1990 on the Establishment of the Internal Markef for Telecommunication Services Through the Implementation of Open Network Provision (90/387/EEC), OJ No L 192, 24 July 1990, p 1; Council Directive of 5 June 7992 on the Applkxtion of Open Network Provision to Leased Lines (92/44/EEC), OJ No L 185, 19 June 1992, p 27; Proposal for a Council Directive on the Application of Open Nehvork Provision(ONP) to Voice Telephony, COM (92) 247, 27 August 1992.
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In its Green Paper on telecommunication services and equipment of 1987* the European Commission submitted the concept for a first general framework of a telecommunications policy at Community level. The Green Paper focused on telecommunication services provided over the public fixed telecommunications network and on telecommunications equipment connected to the public fixed network. The areas of mobile communications and satellite communications were explicitly set aside for consideration at a later stage. The broadcasting sector was also not considered in this approach. In a second step Community telecommunications policy was extended to satellite communications on the basis of the Satellite Green Paper of 1990 in which the Commission proposed to apply the regulatory principles set out in its Green Paper of 1987 to the satellite sector.3 Recently the Commission also submitted a Green Paper on mobile and personal communications4 which sets out the measures deemed necessary to include mobile and personal communications fully in the Community policy on telecommunications. (Figure 1 illustrates the step-by-step development of EC telecommunications policy in these terms.) While with regard to satellite and mobile communications elements of infrastructure regulation were included in the policy approach, the regulation of fixed infrastructures remained largely outside the scope of Community policy, as only certain aspects of access to and the provision of public fixed infrastructures are addressed in measures on Open Network Provision (ONP).5 The main thrust of Community telecommunications regulatory policy concerned the liberalization and, where necessary for the creation of a single market, the harmonization of the equipment and services sectors, which in Europe had thus far been provided under exclusive rights of state-owned PlTs. However, the liberalization measures temporarily excluded public voice telephony, for which member states are currently still allowed to maintain exclusive or special rights. Also for the provision of the basic telecommunications infrastructure the maintenance of special or exclusive rights by the member states was still accepted. Member states have implemented the Community regulatory framework and complemented it with national regulatory measures. With regard to liberalization, however, none of the member states, with Telecommunications
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‘Commission of the European Communities, 1992 Review of the Situation in the Telecommunications Services Sector, SEC (92) 1048 final, 21 October 1992; and Cctnmunication to the Council and the European Parliament on the Consultation on the Review of the Situation in the Te/ecommunications Services Sector, COM (93) 159 final, 28 April 1993. 7Councii Resolution of 22 Julv 1993 on the Review of the Situation in ihe Tekxommunications Sector and the Need for Futther Development in that Market, OJ No C 213, 8 August 1993, p 1. ‘Cf Commission communication of 28 April 1993, op tit, Ref 5, No 55. At the Council meeting of 18 June 1993 the ministers of France, Germany, the Netherlands and the UK supported the Commission’s intention to undertake studies in this area; cf Bundesrninisterium fiir Post und Telekommunikation, ‘Liberalisierung und Harmonisierung schreiten voran’, PostPo/itischeInformation, July 1993, p If. ‘Cse 155ff3 (Sacchi), ECR 1974,490. l”Bu//etin of the EC, Suppl 5/1984. ’ ’ Council Directive of 3 October 7989 on the Coordination of Certain Provisions Laid Down by Law, Regulation of Administrative A&km in Member States Concerning the Pursuit of Television Broadcasting Activities (98/552/EEC), OJ No L 298, 17 October 1989, p 23. ‘2Council Directive of 27 September 1993 on the coordination of Certain Rules Con-
cerning Copyright and Rights Related to Copyright Applicable to Satellite Broadcasting and Cable Retransmission (93/83/ EEC), OJ No L 248,8 October 1993, p 15. 13Cffor example Council Resolution bf 22 Jutv 1993 on the Develooment of Technolo& and Standards in’the Field of Adv%ced Television Standards, OJ C 209, 3 Awust 1993, P 1: Council Decision of 22 Ju& 1993 of+ an Action Plan for the Introductibn of Advanced Television Services in Eu~pe (93/424/EEC), OJ No L 198, 5 August 1993, p 48; Commission of the European Communities, Digital Video Brvadcasting: A Framework for Community Policy, Communication from the Commission to the Council and the European Parliament, COM (93) 557, 17 November 1993; and Commission Proposal for a Directive of the European Parliament and the Council on the Use of Standards for the Transmission of Television Standards, COM (93) 558 final - COD 478,16 Novem-
ber 1993. 14Green Paper on Pluralism and Media Concentration in the lntemal Market, COM (92) 480 final, 23 December 1992.
the notable exception of the UK, went substantially beyond the minimum requirements set out by Community law. Thus in this respecct the national regulation in the member states is a result of the achievements at Community level. In addition, a number of member states have recently begun to consider the corporatization and privatization of their public telecommunications operators. Although this reorganization of the operators is not required by Community law, it is increasingly felt that privatized telecommunications operators are more appropriate in a fully liberalized environment. On the basis of an examination of the situation in the telecommunication services sector by the European Commission, the so-called ‘1992 telecommunications review’,6 the Council of the European Union agreed politically on an action plan for the further development of the Community regulatory framework for the telecommunication sector.7 This action plan provides in particular for: the full liberalization of public voice telephony in the Community until 1 January 1998 at the latest; the submission of a Green Paper on the future regulation of telecommunications infrastructures in the Community by the European Commission; the reorientation of the existing ONP framework with regard to future requirements and the establishment of a regulatory framework for interconnection. In addition to the agenda set out by the Council the Commission proposed to study in 1994 the rapid opening of alternative infrastructures and CATV infrastructures for the provision of telecommunication services already liberalized.* Broadcasting
policies
Although the principle that broadcasting falls under the freedom to provide services as provided for in the EC Treaty was confirmed by the European Court of Justice as early as 1974,9 the Community was relatively cautious in adopting a Community policy in the area of broadcasting. On the basis of the Commission’s Green Paper on ‘television without frontiers’ of 1984l’ the Community adopted a number of directives aiming at the harmonization of certain aspects of broadcasting. In particular, Directive 89/552/EEC on ‘television without frontiers’ set out a number of regulatory positions in order to establish a regulatory environment conducive to the competitiveness of the audiovisual industry. I1 This directive was complemented with regard to copyright and related rights in the field of satellite broadcasting and cable retransmission in a directive of 27 September 1993.l* With regard to broadcasting technologies the Community has also been taking action to promote the development and Europe-wide introduction of digital television.13 Only recently the Commission has submitted a Communication on media concentration14 which also deals with concentration processes in the field of broadcasting and has launched a broad debate on the issue. Thus for the time being only marginal aspects of CATV provision are regulated by the Community. However, although there is no overall regulatory framework at the European level, many European countries do have national policies in place with regard to CATV infrastructures and the services that are allowed to be offered via such infrastructures.
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Table 1. CAlV penetratlon rate and number ot subscribers, 31 December 1992.
Sources: ECCA, EC study, CIT research.
Country
Penetration rate (%)
Subscribers (‘000)
Belgium Denmark France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain UK
91 55 4.5 46 No CATV 34 No CA-I-V 91 06 No CATV 1 2.5
3 509 1 259 1 056 15 323
Austria Finland Norway Sweden Switzerland
20 37 32 47 68
365 100 5350 122 500 800 810 564 1800 2000
National policies regarding CATV European countries
15According to a recent Deutsche Telekom press release, in January 1994 it had 13.5 million subscribers, which would make it larger than the US firm TCI, which has 11.5 million subscribers. ‘?n March 1994 Coditel, the CATV operator in Brussels, offered the following programmes: the Belaian channels TV 1, TV 2, VTM, RTBF, AtiTE/21, Sports 21, RTLTVI; the Dutch channels NL 1,2 and 3; the German channels ARD and ZDF; the French channels FTl , France 2, France 3; the UK channels BBC 1 and 2: the Italian channel RAI Uno; the Spanish channel TVE; and the specific satellite channels Euronews, Super Channel, MTV, CNN, Tv5, Eurosport, Filmnet and Canal +. In addition, one Brussels local TV station is broadcast over the network.
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Although the penetration of CATV is very high in some of the smaller countries in Europe, the overall rate of penetration is relatively low (see Table 1). The penetration rate of CATV was around 17% in 1992 in the Community as a whole. This compares to approximately 50% for the USA and approximately 20% for Japan. CATV first took off in Europe in those countries where demand for additional TV services matched supply: in smaller multilingual countries, where channels from neighbouring countries could be easily picked up at the head-ends of CATV facilities. For this reason it was especially in the Benelux countries, Denmark and Switzerland where CATV was particularly successful in the early years of European CATV. In recent years the top position in terms of absolute number of subscribers has been taken by Germany where Deutsche Telekom embarked on a major cabling programme in the late 1980s. The German telecommunications operator now even has the largest number of subscribers in the world.15 A typical European CATV network may offer around 30 TV channels to its subscribers. The programmes on offer consist basically of retransmissions of terrestrial channels from neighbouring countries or of satellite TV channels.16 Most countries have some form of must-carry regulation, stipulating a minimum package of (national) channels that must be offered. The remaining channels on offer are subject to commercial negotiations between the original broadcasters and the CATV stations. Fees are generally not regulated in Europe, and may vary widely. The owners of the CATV networks can be classified into three main categories: l l l
public utilities; national telecommunications other companies.
operators;
In the Netherlands, Belgium and (to an extent) France, it is often public utilities, in particular the energy companies, that are involved in CATV. On the other hand in Germany, France and the Netherlands (around 20% of the NL subscriber base) the national telecommunications Telecommunications
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Telecommunications Tabie 2. invoivemeni
ol
telscommunicstions
operatom in CAN. No
Belgium Denmark France Germany Ireland Luxembourg Netherlands Spain UK
Dominant Substantial Dominant Substantial No Substantial Yes Limited
Rnland Norway Sweden Switzerland
Substantial Substantial Dominant No
SOURXS:EC study, CIT research.
“‘According to the Cable Television Assoctation (CTA) in their publication Cable 7V and Telecommunications Yearbook 1993, d the 127 potential operating franchises in the UK 77 are controlled by US companies, 35 by Canadian companies, five by a French company, four by UK companies and six by UK/third-country joint ventures. ‘“Unitad States v American Telegraph and Telephone Co, 552F Supp 131 (1982). ‘%f MFJ: ‘no BOC shall, directly or through any affiliated enterprise . . . provlde . . . information services’ (p 227); and ‘Information service means the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information which may be conveyed via telecommunications, except that such service does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service’ (p 229).
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operators play an important role in CATV. Other companies involved in CATV in Europe are manufacturers, such as for instance Philips, which is participating in CATV networks throughout Europe, or third-country telecommunications operators, such as the Bell operating companies active in the UK.l’ Particularly in continental Europe, it is not exceptional that the national telecommunications operator has a major stake in CATV development in its country (see Table 2). In several European countries it was until recently part of government policy to encourage the integration of the separate CATV and telecommunication networks, or at least to bring the two networks under the control of one entity with an eye to further physical integration. This involvement of telecommunications operators in continental Europe is in sharp contrast to the situation in the UK and the USA where regulatory measures have been taken to avoid entry from telecommunications operators in the CATV industry. In these two countries regulatory barriers have not only been erected in relation to cross-ownership of programme and infrastructure activities, but also in relation to cross-ownership of different infrastructures (CATV and telecommunications). With regard to telecommunication services over CATV networks, in most countries it is not permitted to offer two-way services (see Table 3). Of the countries considered in this article, only the UK, Sweden and Finland allow the provision of all services, including voice. The Netherlands and France allow the provision of two-way data services. In all other countries two-way services are not allowed. USA
Cable TV started in the USA in the early 1950s when it came to be used in mountainous areas as a means to overcome difficulties in receiving TV programmes broadcast over the air. By the 1990s CATV had reached a penetration of around 50% of all TV households. The biggest CATV companies are TCI, with 11.5 million households connected, and Time Warner, with more than 7 million subscribers. In recent years three major regulatory milestones have influenced the regulatory environment for CATV and its relation to telecommunications: the Modification of Final Judgment (MFJ),18 the 1984 Cable Act and the 1992 reregulation of the CATV industry. The MFJ limited the sectors in which the local exchange carriers (LECs) could expand.” Part of the 1982 Consent Decree was that the parties agreed that the regional Bell operating companies (BOCs)
Table 3.
Source: EC study.
regulation and cable TV in the European
Permission to otter services other than audiovisual setvlces over
CATV
networks.
One way
Two way
Belgium Denmark France Germany Ireland Luxembourg Netherlands Spain UK
Yes No legal provision Yes No No legal provision No legal provision Yes Yes Yes
No No legal provision irked (data only)
Yes
Finland Norway Sweden Switzerland
Yes No Yes No
Yes No Yes No
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would be prohibited from providing information services and participating in any non-telecommunications industry. So far, it has prevented them from entering the CATV business directly in their territory. The 1984 Cable Act freed the CATV industry from local rate regulation, and established a framework within which the CATV industry was protected from the regular telecommunications companies. ” The Act also prevents broadcast stations from owning CATV networks. 21 Interestingly, it does allow major ‘programme production companies’ such as Time Warner to operate CATV networks. During the 1980s and early 1990s the CATV companies developed into factual monopoly suppliers with full control over their own price setting. Deeming that some of these rates were excessive, Congress decided to reregulate the cable industry, and adopted legislation to curtail the freedom of the CATV industry with regard to setting its own fees. Although the 1980s witnessed a general deregulation of the telecommunications industry, a more prudent or protective approach was thus pursued with regard to the cable industry. It would seem that the cable operators have considerably improved their competitive position in recent years. Recent business movements seem to suggest that CATV companies may be attractive partners for telecommunications carriers to cooperate with in order to establish a strong position in the merging markets of telecommunications and CATV. Also in regulatory terms, signals seem to indicate that the regulatory framework may be adjusted to a new era where the boundaries between broadcasting and telecommunications begin to blur. In the discussion on the National Information Infrastructure (NII) initiative launched by the Clinton-Gore administration, arguments are being advanced for the (partial) removal of barriers between the respective areas of common carriers and CATV companies.22 In addition, new legislation has been proposed in this regard, notably the Markey Bill. The Clinton administration also took a positive stance concerning the easing of restrictive entry barriers in the January 1994 White Paper on Communications Act Reforms, which states that the ‘cable-telephony company crossownership restriction . . . is an unnecessary and artificial barrier to competition in the delivery of video programming to American consumers and to investment in advanced local infrastructure’. The administration also concludes in the same White Paper, however, that certain safeguards are required in order ‘to ensure that cable firms and telephone companies do not harm consumers or competition in providing these services’. z”Section 613 of the Cable Act stipulates that is it unlawful, inter a/k, ‘for any common carrier to provide video programming directly to subscribers in its telephone service area’. 21By stipulating in Section 613 that ‘It shall be unlawful for any person to be a cable operator if such a person owns or controls the licensee of a television broadcast station’ in a relevant coverage area. TRe National information Infrastructure: Agenda for Action, US Department of Commerce, Washington, DC, 1993.
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Japan
In Japan the operation of CATV networks started as a means of providing TV services to remote areas with reception difficulties. Under the ‘universal service’ obligation of the national broadcaster, NHK, that requires it to offer TV to the whole country, NHK originally had some involvement in CATV. In the 1970s and 1980s other (private) companies also came to be involved in CATV. In the early 1990s the penetration of CATV in Japan was around 20%. The national carrier, NIT, is hardly active in this area, although it does have the ambition to offer both telecommunications and television
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services over its network. Already by 1979 NIT had launched its great vision of an integrated network, allowing for the integration of video and voice/data services.23 In the mid-1980s new legislation was adopted that deregulated the telecommunication sector by allowing competition in both infrastructures and services (Type I and Type II carriers). The provision of certain interactive services over CATV networks is in principle allowed, but this hardly ever happens. NTT is not allowed to enter the CATV business, although it is active in experiments.24 However, in Japan too these issues are being reconsidered in the light of the possible merits that an adjusted regulatory framework may have for the optimal exploitation of the economic and social benefits that convergence of media may bring.
Towards a new regulatory framework in the Community? Allowing competition between networks
The basic regulatory principle governing fixed networks in the Community is to allow, for the time being, monopoly provision of infrastructure. In satellites and mobile communications, however, the Community is already fostering infrastructural competition. While reserving a comprehensive discussion on the issue of infrastructure liberalization for the Green Paper on infrastructures to be published at a later stage, the Commission has already argued in favour of allowing the provision of already liberalized services over alternative infrastructures, including CATV networks.25 An argument in favour of competition between cable networks and regular telecommunications networks is that this may lead to an improvement in the supply of telecommunication services in the Community, be it by providing qualitatively better services, by developing entirely new services or by delivering the same services at a lower price. The effects of liberalization must be carefully assessed, taking into account inter ah the possible impact on existing carriers, but also on the overall economy. Even if a decision to allow competition between cable TV networks and regular telecommunications networks were to be taken in principle, there remain many issues to be addressed in regulatory terms. Impact scenarios 23Thethen Vice President of NTT, Yasusada Kitahara, set out the general outline for this plan in his book lnformaticn Network Sptem, Tokyo, 1983. ’ According to Article 1 of the Nippon Denshin Denwa Kabushiki Kaisha Law (‘NlT Law’), the purpose of NTT is to ‘operate domestic telecommunications business’. The Telecommunications Business Law, adopted at the same time as the NTT Law, exludes from the definition of telecommunications business ‘business related to wire radio broadcasting [and to] wire television broadcast service’. 25Ccmmunication to Council and European Parliament on the Consultation on the Review of the Situation in the Telecommunications Services Sectors, COM (93) 159 final, No 55 B3(A), 28 April 1983.
Removing the separation of CATV and telecommunications infrastructure provision will have a substantial impact on the competitive position of the different players - national telecommunications operators, CATV operators that are not telecommunications operators, thirdcountry telecommunications operators and other industry players. This impact is likely to be quite different in countries with an already high rate of penetration of CATV from that in countries with a low penetration. In European countries with an already high penetration of CATV, there are mainly national telecommunications operators and (public utility type) CATV companies involved. The absence of safeguard measures can therefore easily result in reinforcing the dominance of telecommunications operators in infrastructure provision. With regard to existing networks, it is mainly in Belgium and the
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Netherlands that parties other than telecommunications operators play a significant role. However, these players are not commercial companies, and a comparison of the strengths and weaknesses of these parties in comparison to the national telecommunications operators might lead to some concern about the viability of real competition. In countries with a low rate of penetration new entrants may enter and establish a position in the CATV/telecommunications market. However, in these countries the new entrants would probably find incumbent carriers in their way, and it will take a substantial amount of capital, telecommunications know-how and courage to compete with them. It is not unlikely that this is a major reason why most CATV networks in the UK are owned by non-UK companies. A plea for Community action
Assuming that competition will be introduced between CATV and telecommunications infrastructures, it will not be sufficient to remove regulatory barriers if the full benefits of competition are to be reaped. Even in countries that are generally seen as the most liberal, certain safeguards have been established in the interests of consumers and competition. A number of aspects relevant in this respect fall under Community competence. The Community will also have to consider certain precautionary steps when competition between CATV and telecommunications infrastructures is to be allowed. The main considerations in this area would have to relate to: ensuring the application of the Treaty competition rules; establishing an internal market for advanced communication services; 0 creating an appropriate framework for a trans-European communications infrastructure.
l
l
Following the introduction of competition it will be both inevitable and necessary to create a regulatory framework in the European Union which addresses the provision of television and telecommunication services over both CATV and telecommunications infrastructures. Such a framework is inevitable because, if the previously separated services and infrastructures merge without the regulatory framework being adjusted accordingly, there is a danger that Community regulation of telecommunications may affect national CATV and broadcasting policies unintentionally and with undesirable consequences. An overall and comprehensive framework which takes account of the effects of this convergence is therefore required. A regulatory framework is also necessary because policy development in Europe must not lag behind at a time when nations around the world are developing into ‘information societies’, and are developing appropriate regulatory regimes. In this situation Europe must establish a framework that will enable European consumers and industries to benefit from the ‘multimedia’ future. Issues for regulation Cross-ownership, concentration and competition. Allowing CATV and telecommunications operators to enter each other’s area may, together with the removal of other regulatory barriers, lead to one party owning both networks, and possibly even being the dominant provider of TV and telecommunication services. In the USA and in the UK regulatory
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barriers have been created to avoid this situation and to safeguard the survival of an independent CATV sector. In most of the continental part of Europe such barriers currently do not exist. Opening CATV networks for the provision of telecommunication services clearly creates more competition in telecommunications if the cable network operator, as in the case of the UK, is not at the same time the dominant telecommunications network operator. Where, as in most countries of the European Union, the incumbent telecommunications operator is at the same time directly or indirectly operating the CATV networks, the immediate competitive effects of opening up the cable networks will be less important. This raises the question whether telecommunications operators, in particular dominant operators, should in the future be allowed to operate or to continue to operate their own cable networks. While excluding telecommunications operators from CATV network operation would increase competition, it could on the other hand considerably slow down the current process of integration of networks and services and related market developments. If telecommunications operators are not to be excluded from the provision of CATV networks other measures encouraging competition will have to be considered. These include inter aliu the questions of allowing the competitive provision of telecommunications and CATV infrastructures and the access of third parties to existing CATV infrastructures. The creation of new types of services to be provided over the CATV network also raises questions with regard to the vertical integration in the sector. In countries where the CATV networks are opened for the provision of new services the well-established principle of the separation of conduit and content is challenged by the undertakings involved and also by the services themselves for which the distinction between conduit functions and content become increasingly difficult. The implementation of the principle of separation of conduit and content in its current form will have to be reconsidered in order to avoid unwelcome economic and social effects and risks of concentration and vertical integration while at the same time allowing new services to emerge.
2sProposal for a Council Directive on the Application of Open Network Provision (ONP) to Voice Telephony, COM (92) 247, 27 August 1992. 27cOmmunication and Proposal for a Council Resolution on Universal Service Principles in the Telecommunications Sector, COM (93) 543.
Telecommunications
Interconnection. In a situation where different networks are offering similar services, interconnection becomes a major issue. The proposed ONP Voice Telephony Directive addresses interconnection in relation to the provision of telecommunication services over the public teleThe importance of elaborating the concept of interphone network.26 connection has also been stressed in the European Commission’s communication on universal service .27 In the UK, at present the only country in the Community where there is competition at fixed network level, the interconnect negotiations are a matter for the parties concerned, and only come under scrutiny of the regulator when the commercial negotiations fail to result in an interconnect arrangement that is satisfactory to both parties. The main argument is on the ‘access deficit’, the contribution that the incumbent carrier may (or may not) expect from the connecting party in order to fund its uneconomic universal service obligation. In the area of cable television, commercial access arrangements in fact rule the relation between satellite or terrestrial channels and CATV networks. Here it is a question of market power, where in the start-up phase of a new channel the channel must pay the CATV network in order to be retransmitted. In a later phase, assuming that the channel is
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successful, the roles change, and the CATV network may be forced to pay for having the channel on its network. A review of interconnect issues, in particular in relation to the provision of both television and telecommunication services over any infrastructure, would seem to be required in order to establish an appropriate framework at Community level. Regulation of service level. With regard to telecommunication
services provided over the public telecommunications infrastructure, at Community level the ONP framework is in place. This framework sets levels for the provision of infrastructure services concerning technical parameters, tariffs and user conditions. The ONP rules must be developed further with a view to including CATV networks used for telecommunication services. In this context, in particular, the open and non-discriminatory access of telecommunication service providers to CATV networks should be addressed. In addition, CATV networks will have to be made subject to an appropriate set of rules ensuring the protection of personal data, and privacy, as soon as these networks are opened for the provision of two-way services, including multimedia. As regards the diffusion of television programmes via CATV networks, many countries apply specific regulations to the service level. As to the selection of programme channels, for instance, most countries employ a system of ‘must carry’ rules resulting from national broadcast policies. Also, with regard to fees for the provision of services, specific regulation may be in place, although this is certainly not the case in all countries. Moreover, the notion of universal service appears, for the time being, to be lacking in the CATV domain. The ECCA (European Association of Cable Companies) focuses its interest on only the 70% of ‘economically accessible homes’ in Europe, and in so doing excludes the remaining 30% from the basic CATV service. Nevertheless, concerning the provision of broadcast services, a universal service notion exists in certain countries. NHK, for example, has a legal obligation to provide its broadcast service to 100% of the population in Japan. This was in fact one of the main arguments for the company to invest (modestly) in CATV systems, and later, in the early 1980s in satellite broadcasting. When the broadband CATV infrastructure becomes a major element of the realization of the information society, the extension of the concept of universal service to these networks has to be considered. A Community framework should address both the access, or the right of access, of service providers to the network(s), as well as the access of users to the services. In addition, the expansion of its scope should be considered in order to encompass the transmission of both television and telecommunication services over any infrastructure. Equal access to third-country markets. With regard to the provision of
telecommunication services, there is currently no specific Community legislation in place restricting the access of third-country service providers. The actual ownership of infrastructures is for the time being outside the scope of specific Community legislation. Nevertheless legal and/or factual barriers to investments by third-country companies into CATV or traditional telecommunications networks currently exist in most 376
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countries, both inside and outside the Community. In establishing a regulatory framework for cable networks the Community would have to ensure that European undertakings have equivalent access to the CATV networks sector in third countries.
Conclusions The present regulatory framework established at Community level does not yet address the issues of telecommunication services provided over CATV networks or broadcast services provided over regular telecommunications networks. In different regions of the world different regulatory regimes are in place: some favour protective measures for the CATV networks, while allowing competition; others limit competition and aim for control of CATV and telecommunications networks in the hands of one entity. In particular, there would seem to be a difference between the US approach and that in mainland Europe. Whereas in the USA, after a period of separation of CATV and telecommunications infrastructure, there are now moves to relax this strict separation with a view to new market requirements, in many continental European countries the integration of CATV and telecommunications networks has already been under consideration for some time for principally technical reasons. The European sector will now have to develop a market vision for the profitable use of integrated networks. The convergence of communications technologies, and in particular the integration of CATV and telecommunications infrastructures, is at the heart of the future information society. The establishment of an appropriate European regulatory framework which takes account of this phenomenon is urgently required.
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