Convergence is already showing signs of being a key driver of current developments in telecommunications, media and information technology industries. The range of developments and trends for comment identified in Chapters I and II above have the potential to impact substantially on the take off of the information society in Europe.
In order to formulate an appropriate response to current developments, it is important to launch a broad debate on what, if any, barriers exist - actual or potential - which may hold back the trend towards convergence.
Chapter III attempts to identify such barriers and invites comments on their impact. Not all the barriers identified are regulatory in nature, nor is a regulatory solution the only means of resolving potential problems. Nevertheless, it seems sensible in the overall context of this Paper to invite reflections on a wide range of factors which might impact upon the process of convergence.
Where regulatory barriers are identified therefore, there should not be an automatic assumption that a regulatory response is required. As stated earlier, the application of competition rules to this sector is important, and market solutions which remove barriers to convergence within the context of those solutions will often be more appropriate.
At a Community level, actual or potential barriers must be assessed against the basic objectives of the Treaty, such as the establishment and functioning of an Internal Market; the promotion of a system of undistorted competition; the realisation of trans-European networks, or the maintenance of a high standard of consumer protection. They must also be examined as well as against the specific freedoms envisaged in the Treaty, such as the rules relating to the freedom to provide services or the right of establishment.
Rules creating restrictions need to follow a general public interest objective (as laid down in the EC Treaty or by the ECJ) and must be proportionate to that objective to be acceptable. At the same time, any Community action (including action to harmonise divergent national rules), would pursue these general public interest objectives, and would be subject to the principle of subsidiarity.
In the following sections, we attempt to identify key actual and potential barriers to the development of the convergence phenomenon and ultimately to the realisation of the Information Society in Europe.
Access to users. Approaches differ between sectors with regard to the ownership and operation of networks. This means that many services will have a limited choice of routes to the customer. Even where legal monopolies have been abolished, the economics of the local loop may leave current telecommunications and cable TV network owners with a predominant role in connecting customers in many markets. Where bottleneck facilities are controlled by vertically-integrated players, there is the potential to limit competition at the service level.
Regulatory restrictions on use of infrastructure. Current restrictions in some Member States (and not others) regarding what types of services can be carried on different infrastructures could make it difficult for operators to formulate unified strategies addressing pan-European markets. It may also prevent economies of scale being realised. The resulting higher unit costs, and hence tariffs, could hold back the delivery of innovative services.
Prices for telecommunications services. High prices for telecommunication services and for the underlying network infrastructure used to deliver services may impact significantly on the demand for services. Among the reported reasons for Internet's success in North America is the widespread application of a flat-rate tariff structure offering `free' local telephone calls, and the fact that competition has led to lower charges for leased network capacity. [46] This results in significantly lower costs for access providers.
Availability of content. As mooted in Section II.1, expansion in the means of delivery brought on by improvements in technology and by convergence may shift the bottleneck from delivery to content, and may lead to a shortage of adequate content in the medium term. Premium content is already a key factor for success in both digital and analogue television markets, Continued shortages could inhibit new market entry, and with it competition and innovation.
Fragmentation of EU market. Expansion in the number of broadcast television channels will be likely to be at the expense of the market shares of existing broadcasters. Shrinking market shares could be offset by widening the target audience beyond national frontiers. Similarly, as new services develop, much innovation will come from small players exploiting niche markets, or from large players funding large R&D budgets. Either way, they will both need larger volumes than can be provided by national markets in order to defray their costs. Whilst TV channels are free to seek larger audiences as a consequence of the Television without Frontiers Directive, the principle challenge for them may be one of multilingual, multi-cultural audiences, rather than potential barriers to establishment in countries in which they wish to establish a commercial presence.
Insufficient IPR protection. Content providers will only be willing to make content available if their intellectual property rights are sufficiently protected. Similarly, publishers and operators will only invest in innovative services if they are confident that new means of delivering information and/or services provides an adequate degree of protection for the intellectual and industrial effort of their organisations and those of content providers. Insufficient protection is already a barrier for off-line electronic content, and this could project into the on-line world. Recent WIPO agreements referred to later in the Paper are helping to clarify the current situation.
In view of advanced state of current Community initiatives which adapt the existing legal framework in this area to the digital environment, this Green Paper does not address regulatory issues raised by copyright and related rights. These particular issues have been extensively dealt with in the Green Paper on Copyright and Related Rights in the Information Society and in its follow up Communication,[47] and the resulting approach takes due account of the evolution of technologies towards convergence.
Regulatory uncertainty Regulatory uncertainty resulting from the scope of current definitions; the way they are applied or whether they fit changing market structures or service characteristics could constitute an important barrier to investment by market players. Whilst many definitions today (at both a national and Community level), such as those of telecommunications, voice telephony, television broadcasting or information society services will continue to remain valid for many activities, the provision of services may be nevertheless be held back where those definitions leave businesses uncertain as to the regulatory treatment which their services will receive.
In some cases, this may simply be a risk that, notwithstanding current definitions at a Community level for both broadcasting and telecommunications activities, regulators in some Member States may place a particular novel service under one regulatory regime, whilst it is considered to fall under another regime in other Member States.[48]
Furthermore, within Member States barriers could result if similar services were regulated differently, for example on the basis of the platform over which they are delivered.
In other cases, the characteristics of services in the future may mean that they straddle more than one regulatory area on the basis of current definitions. This may result in a disproportionate regulatory burden on certain services.
Finally, the technological and market trends identified in Chapters I and II may also challenge the basis on which definitions are currently drawn up.
One example of regulatory uncertainty arose during the recent French election campaign, where rules prohibiting the publication of opinion polls in the week prior to the election applied to off-line media, but not to polls published on the Internet. A number of editors in these circumstances ignored the ban which placed traditional media at a disadvantage[49] .
Multiple regulatory bodies. The process of obtaining regulatory clearance in all Member States and potentially from different regulatory bodies for a particular package of services may create substantial overheads for those wanting to operate on a pan-European basis. The provision of services may be held back where market players are subject to a number of regulatory regimes or must deal with multiple regulatory bodies, for example, where a network is required to be licensed both as telecommunications infrastructure and as a broadcasting network (because it is used to offer both services).
Market entry and licensing. There are differences within the telecommunications, media and IT sectors with regard to whether or not market entry is unrestricted, limited or subject to monopoly or special rights. The IT sector is generally free of licensing procedures.
Any use of licensing or any regulatory limitation on market entry represents a potential barrier to the provision of services, to investment and to fair competition and should therefore be limited to justified cases. In particular, the trend should be towards limiting regulation where potential barriers exist, rather than extending heavier regulation to more lightly regulated sectors in order to equalise market conditions.
Where licensing continues to be important, there is considerable variation between sectors and between Member States in the length of time it takes to obtain licences; the transparency of procedures; the duration of licences and the fees paid. Many telecommunications and broadcast network licences are national in scope, but others - particularly for cable TV delivery are regional or local in scope. All of these factors, whilst acceptable in the context of the specific sectors, may make it harder or more expensive for organisations to offer an integrated package of services, particularly across borders. This may represent a disproportionate burden given that the technology promotes such integration and there is likely to be increasing demand from both business users and consumers for such integration.
Access to networks, conditional access systems and content. The issue of access is principally a matter for commercial negotiation, subject to the overall safeguards provided by competition rules. Nevertheless, there is currently an asymmetry in that access rules are in place only for certain networks (for example, the interconnection and open network rules which apply to telecommunications networks, but not to infrastructure used for broadcasting activities. Similarly, a framework exists for conditional access systems for digital television, but not for all types of digital services. (Note that in the latter case, the UK is currently consulting on the development of common framework for conditional access systems for all digital services).
Where market players control the access to the customers, for example, through ownership of the local loop, or through control of conditional access technologies, the company concerned may be able to discriminate in favour of its own services.
With regard to access issues linked to content, normal commercial principles generally apply, tempered only by applicable competition rules. One exception to this is the treatment of certain "premium" content in Member States, such as national sporting events where the revision to the Television without Frontiers Directive has provided for the mutual recognition across the Community of events reserved by Member States for free-to-air television broadcasting.
Allocation of radio frequency and other resources. The provision of services (and the development of effective competition) will depend on the availability of sufficient network capacity, which for many services means access to radio spectrum. The parallel expansion of television broadcasting, mobile multimedia and voice applications, and the use of wireless technologies within fixed networks will lead to a significant growth in demand. Where there are marked differences in the amount of spectrum available or the way in which it is allocated, potential barriers are likely to arise, impacting the underlying cost-bases of network operation in the different sectors, potentially encouraging competitive entry into one sector rather than another.
Varying approaches to the achievement of public interest objectives. The regulatory frameworks for each of the sectors affected by convergence contain a variety of measures seeking to ensure particular public interest objectives which are specific to those sectors and which are consistent with Community objectives. Indeed the Commission attaches great importance to the delivery of general interest services[50] in particular, in ensuring social and regional cohesion in the Community, whilst in the telecommunications area, the steps taken to ensure universal service at a national level now flow from a framework established at a Community level. Nevertheless, the manner in which such objectives are pursued (rather than the objectives themselves) may represent a potential burden to the organisations subject to obligations in respect of their implementation.. In the context of the cross-border provision of services, tensions between differing approaches between sectors and between Member States, could deter such service provision or investment in innovative services or networks.
Public confidence in new environment. Where the level of protection relating to consumer protection, the legal treatment of electronic transactions, or data protection and privacy vary across sectors, users and consumers may lack confidence in the services and systems made available, holding back the development of converged services.
Lack of standards supporting interoperability and interconnection of converging networks. The goal of ensuring that any user can communicate with any other user will be held back where market action is unable to deliver products and services which are interoperable. Proprietary standards controlled by dominant players could limit such interoperability.
Chapter III highlights both actual and potential barriers to convergence.
What is the likely impact of the barriers identified and are there other barriers or factors which may have a significant impact on the convergence process in Europe?