In examining the impact of barriers identified above, Chapter IV considers first whether certain features of the convergence phenomenon create new and specific challenges for regulation.
The globalisation of services is a feature of the new landscape. While satellite television broadcasting represents one example, it is the Internet which constitutes the quintessential global network. The Internet's structure and ubiquity potentially allow it to defy attempts to apply existing regulatory objectives at national level.
Chapter IV.1 examines the challenges which current developments pose to the balance between regulation, competition rules and reliance on market forces. It also considers how the convergence process may impact on the principles underpinning current regulation in the telecommunications, media and IT sectors.
(A) Do current developments require more or less regulation in the sectors affected by convergence, more or less reliance on competition rules, and more or less reliance on market forces to achieve the objectives identified in earlier Chapters?
(B) Whether and if so, to what extent convergence challenges the principles underpinning existing regulatory approaches in the telecommunications, media and IT sectors?
This section examines seven broad areas where potential regulatory barriers have been identified:
The section does not address a number of issues which are currently the object of separate initiatives within the Commission. These include areas such as media ownership, digital signatures, and encryption, and as mentioned above, intellectual property rights, copyright and related rights.
Current definitions delimit the boundaries between different sectoral regulation and different regulators. Regulation is linked to the definitions of activities. Although regulation can be "technology neutral", as in the broadcasting sector (and increasingly in the telecoms sector) it may be linked to the technology used to offer services, as well as between areas which are regulated and those which are largely free from detailed rules.
The convergence process will not remove the need for definitions, but uncertainty about the regulations applicable to activities or different definitions at national level could create barriers to investment or to the provision of services. At the same time, it should be noted that the fact that different services can be delivered over the same network does not in itself alter the character of the services so that they become one and the same service.
In the light of the potential barriers identified above, current approaches to regulatory definitions (and the way in which those definitions are applied by regulatory authorities) should be examined to consider whether they:
A number of Member States have provided definitions for certain new activities. In Germany, new concepts of "teleservices" and "media services" have been created, focused on the nature of the activity rather than the underlying technology. Audiovisual law in France has also focused on the nature of the service rather than its underlying platform.
Possible options
One option would be to continue to work with existing definitions, recognising that these remain valid for the majority of services offered and to extend, where appropriate, the principles underpinning current regulation, whilst adapting the way in which it is applied to take account of the specific characteristics of the "new" services.
A second option might be the creation of a separate category of "new" services to co-exist with existing definitions.
A third option would be the adaptation of current definitions used in telecommunications, and/or broadcasting to reflect current trends and developments.
Among the potential barriers identified in Chapter III were a number resulting from the impact of the differing market entry, licensing and operating conditions in the sectors affected by convergence. This raises a number of issues which are considered below:
Market Entry
The grant of special and exclusive rights by Member States is not incompatible with the Treaty rules, where such rights are justified for the fulfilment of a task of general economic interest assigned to the undertaking concerned and proportionate to the achievement of the objective in question, even if those rights result in a restriction of competition or a barrier to the free movement of services.
In this context, some would advocate that where any network can potentially carry any service, public authorities should ensure that regulation does not stop this happening. They would argue that to allow artificial restrictions on the use of networks, or to maintain monopolies where other parts of the converged environment are fully open to competition, may deny users access to innovative services, and create unjustified discrimination. Such an approach would be seen by them as running counter to the technological and market trends identified earlier in this Paper.
Barriers could occur in a number of ways:
Others would argue that the grant of limited rights or limiting the use of networks to particular purposes are important ways of encouraging investment.
Some also argue that these types of restrictions are particularly important where competition is at an early stage or where a particular player enjoys a very strong position (for example, over a competing network or over "premium" content). In such cases, specific safeguards can ensure that potential competitors are not discriminated against or that there are adequate incentives for them to enter the market. According to this argument, appropriate safeguards might take the form of accounting separation or transparency requirements, structural separation or even full line-of-business restrictions.
Licensing
Many activities and areas in the computing, and IT areas are not subject to licensing requirements. That is likely to continue to be the case in the future and the Commission sees no reason why there should be any change in this practice, providing IPR issues are effectively addressed.
At the same time, licensing is likely to remain a key regulatory tool through which public authorities can exercise control over their national markets, particularly in relation to the provision of telecommunications and broadcasting networks and services.
Any assessment of the justification for, and effectiveness of, licensing procedures must in the first instance be made in the context of the specific sector to which these rules are applied. Nevertheless, the range of potential barriers identified in Chapter III linked to licensing suggests that this issue could need to be examined more closely in the light of technology and market trends.
Some commentators argue that a key aim must be to make it easier to get into the market and to move towards lighter obligations applied in a consistent manner across the converged environment. They are therefore encouraged by examples in the computing, Internet and on-line publishing industries, where a degree of self-regulation, for example, in relation to harmful or illegal content on the Internet, has supplemented the application of general laws, such as competition or consumer protection rules applying across whole range of economic activity. Even so, self-regulation is not without risks for the Internal Market given the greater possibility for divergent approaches in developing self-regulation, unless co-ordinated to some degree at a Community level.
At the same time, even where licensing systems are not needed and self-regulatory solutions are proposed, consumers may still require guarantees that their interests are adequately protected and that the respective responsibilities of service providers and operators are identified with regard to the consumer. Consumers should be fully involved with the development and operation of any self-regulatory approaches.
The global dimension of the Internet and other communications and broadcast services will also impact on approaches to the enforcement of licensing, and call into question the relevance of national licensing of activities carried out either within a Member State or delivered by regional platforms, for example, by satellite.
Encouraging innovation and efficient operation through licensing. Awarding authorities could consider moving away from licensing approaches which prevent innovation or limit efficient operation. One example, in the telecommunications area, would be tying the delivery of services to a particular technological platform - for instance, by requiring separate licensing (beyond frequency assignment procedures) for a fixed network operator wishing to use wireless-based systems in the local loop. A new approach to the licensing of broadcast services may be necessary. At present broadcasters are, generally speaking, licensed or authorised on a channel-by-channel basis by the relevant authorities within each Member State. These systems, which are a product of tradition and the historical development of television broadcasting services may require reviewing in a new multichannel digital environment. Possibilities such as the licensing of broadcasters for a set of services (such as a satellite package or a terrestrial multiplex), rather than for individual channels should be evaluated. The 1996 UK Broadcasting Act, which provides for multiplex services licences for digital terrestrial television, is an example of what is perhaps the beginning of a trend that should be encouraged.
Common principles for the award of licenses As indicated in Chapter III, divergent licensing conditions may deter market entry and act as a barrier to an internal market. Where such barriers are identified, they would have to be justified by a public general interest objective and be proportional to that objective.
To avoid such divergence, there may be scope for applying a common set of principles across the Community. These could include:
IV.2.3 Access to networks, conditional access systems and to content
The question arises as to whether rules for open access currently applied to telecommunications and digital television conditional access infrastructures should be applied more widely in the sectors affected by convergence. If market and technology trends develop as suggested in Chapters I and II of this Green Paper, convergence is likely to see a shift in the value chain, such that content production, packaging and service provision increase in value (though not necessarily as separate business activities), whilst carrying services over a fixed or wireless network may, as reflected in some merger activity, become comparatively low value activities. This trend will be accompanied by attempts on the part of today's network operators to extend their activities into higher value business areas.
Access at either end of the transmission network (i.e. the delivery of the service to the user's phone, PC or television and the ability to access the network in the first place to offer services or content) will be of crucial importance.
In general the terms on which access is granted to networks, to conditional access systems, or to specific content is a matter for commercial agreement between market actors. Competition rules will continue to play a central role in resolving problems which may arise.
This raises the issue of the role for sector specific rules at a Community level alongside the general Treaty provisions promoting undistorted competition and the free movement of services.
EC legislation is now in place supporting commercial agreements for the interconnection and interoperation of telecommunications networks and services. Similar legislation is in place in relation to digital television, in particular regarding Access by third-party broadcasters to conditional access systems.[53]
The emerging market will consist of players of very different sizes, but as indicated above there will also be strong vertically-integrated operators from the telecommunications, audiovisual (principally broadcasting) and IT/software industries building on their traditional strengths and financial resources. Issues which could arise across the different sectors include bundling of content and services, or of network capacity and services, predatory pricing, cross-subsidisation of services or equipment, and discrimination in favour of own activities.
Furthermore, the predominant position of current fixed telecommunications and broadcasting operators in the residential market will mean that for the foreseeable future they will control bottlenecks for accessing customers. Apart from the local subscriber loop, these include conditional access and navigation systems.
Access to networks
As stressed above, as a general rule issues of access to networks or to content, are a matter for commercial agreement, subject to the application of competition rules. Nevertheless, in some areas, regulatory intervention to support the commercial process has been provided for within current frameworks.
In the telecommunications sector, the framework agreed for interconnection ensures that users can contact any other user and that service providers can access those customer on fair, non-discriminatory and proportionate terms. Additionally, powers to intervene and resolve disputes are given to the national regulatory authorities for telecommunications and a number of safeguards are put in place to ensure greater transparency and non-discriminatory behaviour.
As indicated in Chapter III, the fact that an open framework is applied to one set of infrastructure but not to others may create barriers and distort investment, particularly, if convergence of technologies extends over time to the industry and market and service levels. The issue in the context of possible convergence may therefore be whether there is a case for the extension of open access principles such as those applied to telecommunications infrastructure to other networks, or whether there are other principles which might be developed.
Even within the telecommunications sector, the development of the Internet is raising a range of issues connected to the terms on which Internet access providers get access to current fixed and mobile networks. One issue is whether they should enjoy the same interconnection rights as other players and whether they should be able to get access to unbundled service elements, whilst another issue is whether such providers in offering a range of telecommunications services should share some of the obligations of providing telecoms services.[54]
The issue of access to conditional access systems may become more significant than the issue of control over the pipe up to the point at which it connects to such a system.
Again, in the telecommunications sector, Community policy does not require a full unbundling of the local loop, or a structural separation of the associated infrastructure, from the provision of services carried over it. This does not exclude appropriate safeguards or requirements being introduced under the competition rules. In reality, the issue of unbundling of the local end of transmission networks is complex and must be closely linked to the degree of overall competition in the market concerned, the availability of viable alternative distribution channels and the starting point for competition in the particular market. Some argue that unbundling may act against the consumer interest in the longer term by removing economic incentives for organisations to put their own wired or wireless networks in place.
Conditional access systems
Conditional access systems are the technical means by which content and service providers can recoup their investment either through subscriptions or charges for individual consumption. The Television Standards Directive provides a regulatory framework for conditional access to digital television services, based on a requirement for those operating such systems to offer broadcasters technical services on a fair, reasonable and non-discriminatory basis. The Directive takes a deliberately balanced position for the start-up phase of this new industry. Its requirements are sufficiently light to encourage innovation and investment in a rapidly evolving technical and commercial environment, and sufficiently strong to protect fair competition and consumer welfare. The Commission is concerned at the pace of implementation of this Directive into national law in the Member States. It is actively employing the powers given to it by the Treaty to ensure timely and correct implementation. Where incorrect implementation has occurred, the Commission has acted vigorously to ensure proper compliance with the Treaty.
Navigation systems have emerged as a tool to help users manage the growth and range of information and services in the Information Society. Examples of navigation systems include Browsers (e.g. Netscape, Microsoft Explorer), search engines (Altavista, Yahoo, etc.) and electronic programme guides (EPGs).
Currently, they form two distinct market segments - Browsers and search engines are tools for exploring Internet web pages, whereas EPGs represent the electronic "zappers" of the future, guiding viewers through a myriad of digital television programmes and channels. Many consider that this new mode of programme selection will lead to the demise of the channel concept as we know it today, to be replaced by strong umbrella brands complemented by à la carte choices on the part of consumers.
Browsers and search engines are inherently independent, able to explore the Internet universe without tying themselves to particular sources of information, or to particular operating hardware or software. Recently, however, competition concerns have been raised about the possibility of Browsers being packaged with other software or even becoming fully integrated to the software itself.
Conditional access and Navigation systems depend for their success on the co-operation of market players present in different parts of the value chain, raising the spectre of a gate-keeping role which could be abused, especially by vertically-integrated players, to foreclose market entry by others. An extension of the principles already applied to the digital television field with the object of ensuring that new entrants will not be excluded from access to such systems should be considered.
In contrast to Browsers, EPGs are linked to the `information' accessed via them developing as support devices for specific digital television programme bouquets, or for offerings of television and interactive services. Issues of ensuring listing of third-party services or programming, and the quality of such listings, will be of critical importance.[55] Exclusive arrangements tying particular EPGs to particular service bundles may become a problem requiring regulatory intervention to ensure third-party access on fair, transparent and non-discriminatory terms.
A new feature of the consumer's home terminal is the Application Programming Interface (API). The API is a set of software in the terminal, resembling the operating system of a PC. It is used to manage interactive applications, including EPGs, carried by the terminal, and to provide a specified interface for the development of applications by third-parties. The PC industry owes its success in a large part to the role of de facto standard APIs in facilitating the creation of a wide variety of third-party- developed applications software. At the time of writing there are a number of different APIs used in set-top boxes in Europe, risking fragmentation of the market and problems of interoperation. Furthermore the combined use of proprietary APIs together with EPGs and conditional access leads to increased of risks of abuse by operators controlling access to services.
The market implementation of digital television is occurring in an environment of rapid technological change, the eventual outcome of which is not yet clear. Comments on this issue should therefore assist the Commission in assessing whether the Television Standards Directive is adequate to cope with this technological change and its market consequences.
Access to content
As a general rule, arrangements made between content providers, rights owners and content carriers are a matter for commercial agreement. If exclusivity is granted, this may be an issue for competition rules. Exclusive agreements between content providers and content carriers may limit consumer choice by excluding access to content provided by competitors, especially until there is effective competition in the provision of delivery channels to the user. Possession of rights to key content, such as major sporting events, may give market players particular commercial power.
Although the content industry is heavily scale-dependent, it generally exploits such economies of scale by careful management of distribution windows (e.g. cinema, video rental, video sell-through, pay-per-view, pay television, free-to-air television). Exclusivity of distribution is often a feature which secures this process for content owners. Convergence may impact on the current basis for window management, and could lead to a greater dependence on non-exclusive electronic distribution as a more effective means of maximising revenues.
Likewise, convergence may have the effect of dissolving conveyance bottlenecks. For example, the exclusive distribution rights awarded to cable television companies may no longer translate automatically into monopoly power at the service level. Cable companies are likely to compete with digital satellite and terrestrial television broadcasters, Internet access providers and telecommunications operators.
IV.2.4 Access to the Frequency Spectrum
Despite the fact that the digitisation underlying convergence significantly expands the potential capacity of transmission networks, the growth of demand, both in terms of market players and bandwidth, means that resource issues will continue to be a key regulatory issue; principle amongst these is access to radio-spectrum.
Frequency spectrum remains a key, but finite resource even in the digital age. Whilst significant gains will ultimately result from a switch from analogue to digital technologies, both for mobile telephony and for broadcasting, any transition will remain a slow one. For Internet access and other on-line services, satellite-based delivery offers the possibility of high speed delivery to a PC or television and the use of the fixed telecommunications network as a return path. In addition, the take up of wireless local loops and the arrival of Universal Mobile Telecommunications Services (UMTS) early in the next century all point to a steady growth in demand for spectrum.
Given the importance of spectrum, variations identified in Chapter III between sectors with regard to how much spectrum is available and how much that spectrum will cost may have an important impact on the development of existing and new delivery channels. Whilst overall allocations are determined at an international and regional level, current differences across sectors to the pricing of frequency may create potential competitive distortions. One example could be where a broadcaster offering multimedia or on-line services uses spectrum obtained free or at low cost, competes with operators from the telecommunications sector who have paid a price reflecting the commercial value of the resource allocated.
Many commentators argue that, from an economic standpoint, pricing spectrum may encourage its more efficient use and may help to ensure that frequency is allocated to the areas where it is most needed. They would argue that similar commercial principles should influence frequency policies at the stage that allocation is determined within the World Radio-communications Conferences or at a regional level, so that allocation decisions should seek to make spectrum available to high value users in preference to low value users.
Were all spectrum to be subject to a commercial valuation this might have a knock-on effect of encouraging existing public users, such as the military or the police, to use more cost-effective technological solutions, freeing up certain frequency bands for new services.
Frequency auctioning is favoured by many economists as the way to best ensure outcomes which are in the consumer's ultimate interest. Although others express concern about the impact of such pricing on prices charged to users.
With regard to efficient use of spectrum, one approach could be to move away from current practices of assigning particular blocks of spectrum to particular services, or to the use of particular technologies to deliver such services. In such a situation, certain minimum technical safeguards would still be required, (e.g. against electro-magnetic interference between different systems). This is one of the issues raised in the context of the introduction of UMTS, but could be of wider application. In practice this might mean that instead of assigning a particular band of spectrum exclusively for the provision of mobile communications or broadcasting, the assignee could be allowed to use the spectrum for the services of its choice.
Finally, increasing demand for spectrum, particularly for UMTS and for satellite-based services puts increasing pressure on existing mechanisms for frequency co-ordination at a regional level.
Chapters I and II have illustrated how each part of the converging sectors are moving from analogue to digital technologies. Member States could play a key role in this process by developing clear timetables for such a switch in order to give clarity to service planning Others argue that this is an issue of user preference and should be left to market forces. Nevertheless, the level of demand for spectrum is likely to outstrip currently available frequency resources, so that Governments may have a key role in reassessing the current balance between telecommunications, broadcasting and civil/ State usage of available resources.
Additionally, consideration might need to be given to whether such a switch over needs to be co-ordinated at a European level. It can be argued that a clear timetable for the complete transition from analogue to digital transmission of services using the frequency spectrum would avoid not only the fragmentation of the Internal Market, but also delays in releasing valuable spectrum used by analogue services today, to other users. Other argue that issues of frequency allocation such as this are governed by the subsidiarity principle and that the Community has no role to play in their resolution.
It has been argued in this Paper that one of the most important consequences of the blurring of technological borders between information technology, telecommunications and consumer electronics is the increasing globalisation of services. The inherently global nature of the Information Society calls for any standardisation in support of its development to be similarly global. Users may want access from any terminal to any service, independently of the technology used, or the geographical point of such access, within a multi-vendor environment.
A major objective for standardisation therefore is to achieve interoperability between networks and services. Technological harmonisation is not an objective. However, standardisation is a tool which can reinforce both general policy objectives, such as the creation of an Internal Market for communications services, and the regulatory framework. Encouraging best business practices in areas related to data protection and security of digital signatures may be supported by standardisation and consensus-building within an appropriate regulatory framework.[56]
There is a legitimate public interest in providing industry, users and public authorities with efficient platforms for consensus building both at European and international level. Even though the Information Society is global, standardisation can start at regional level, provided that players from other regions can participate in the activities. The workshop mechanism has the potential to offer the platform for consensus-building while it also allows European players to increase their impact on the international standardisation scene.
The IT and on-line publishing markets operate almost entirely free of specific price controls. In the broadcasting sector, price controls (e.g. on the licence fee), where they exist, are generally motivated by public interest objectives seeking to ensure that service remains affordable for viewers and listeners, so that high penetration is achieved for free-to-air channels. The affordability requirement for universal service in telecommunications is based on the same premise and translates, in a number of Member States, into a price cap mechanisms applying to a basket of retail and/or business services and to subsidised social tariffs for particular groups of users. Pay TV channels including premium services, as well as commercial activities of free to air regulators are not generally subject to price regulation, but are subject to competition from other market operators.
Additionally, under specific telecommunications regulation, as part of the transition to fully competitive markets, controls apply to operators with significant market power to require that the charges for interconnection, voice services and leased infrastructure are cost-oriented. In that situation, price regulation is acting in as a proxy for the effects of competition. There has been no direct analogy in the case of point to multi-point broadcasting, but interconnect issues are now arising where interactive or transactional elements are being introduced - conditional access is the first such area.
Innovative pricing packages will play a key role in promoting services in the Information Society. The take-off of many on-line and transactional services is directly influenced by the cost of the underlying infrastructure. A key commercial message must be that innovative pricing will be central to a much wider take up and use of on-line and other services.
Additionally, an assessment may need to be made as to whether there are potential distortions where differing pricing rules apply to different networks, even though in a converged environment any network may be able to offer any service. At the same time, the existence of competitive delivery channels is likely to limit the possibility to set prices, for example for network access, independently of competitors, so the case for regulatory intervention may not be made.
Finally, convergence may over time expose public broadcasters to commercial pressures. The experience in telecommunications may be illustrative, as operators in this sector have moved over time to price their services in a manner more consistent with the increasingly competitive environment, notwithstanding the regulatory constraints on such pricing.. Such experience demonstrates that such adjustment in pricing structure can occur in a manner which does not affect adversely the overall affordability of the services delivered. The manner in which public broadcasters are currently funded (licence fee, advertising, public subsidy) does not allow a direct analogy with telecommunications to be drawn. Whether this should prevent broadcasters wishing to introduce different pricing structures is a matter for comment, as is the impact that more commercial pricing approaches would have on eligibility for State funding or the ability to access other revenue sources, such as advertising, subscription funding or exploitation of rights.
Chapter IV.3 examines in a number of key areas where regulatory solutions may be needed to overcome barriers and to safeguard competition.
(A) Are the definitions in the telecommunications, media and IT sectors in
national and/or Community legislation adapted to the convergence process?
(B) Will the convergence phenomenon require adaptation of existing
approaches or the adoption of new approaches to be applied to issues of market
entry and licensing; access to networks, customers (including conditional
access systems), content; and pricing?
(C) Will convergence require changes in the approaches to the award and pricing of frequency spectrum, and in particular what approach should be taken, in the light of convergence, to the issue of completing the transition from analogue to digital services, including the need for a timetable for analogue switch-off?
(D) What should be the objectives of standardisation in the light of convergence and what should be the relationship between regional and international standardisation?
(E) What additional action (if any) is required to ensure that the interests of consumers and of users with disabilities are respected in the light of convergence?
The objective of maximising benefits and minimising the risks of consumers implies the need for the creation of adequate regulatory instruments to protect the fundamental rights and responsibilities of consumers arising from the wide circulation of information in the sectors affected by convergence. Privacy issues, responsibility for content and the protection of minors, free speech versus libel, appropriate jurisdiction and consumer representation, are some of the issues that need to be addressed in the new environment.
Rules seeking to ensure the achievement of certain public and general interest objectives are found in all sectors affected by convergence. As highlighted above, this is fully consistent with the importance attached at a European level to the role of services of general economic interest within the Community concept of European Society. The trends identified in Chapters I and II do not remove the value of universal service regulation for telecommunications, or a public service mission in the broadcasting field. Indeed, the possibilities now offered by technology strengthen the need for clear and effective rules relating to specific objectives such as privacy and data protection; the promotion of cultural diversity or the need for a framework for the protection of minors and public order.
Nevertheless, the impact of convergence may well be on the way such objectives are achieved and by whom. Equally as recognised in Chapter III, the different rules while adapted to the specific characteristics of each sector, may nevertheless create potential barriers to integrated service provision or cross-border operation.
Universal service obligations in general ensure the universal availability of defined services at an affordable price, whilst the public service mission of broadcasters extends beyond issues of universal availability and price and lays down conditions relating to the content of the services provided. Against this background the starting point for any analysis of public interest objectives in the light of convergence must be the need to define public interest objectives so that market actors have a clear idea of the obligations with which they must comply. Some consider that such an assessment is also essential in order to gauge whether these objectives remain valid in the face of the evolving communications and media environment, whilst others argue that the objectives remain valid and only the way in which they are satisfied may evolve. In either case, a proper assessment seems to require a clear identification of underlying objectives.
In the case of certain objectives in the different sectors, specific obligations have been placed on one or more operator to guarantee these objectives. This is the case with universal service carriers in the telecommunications sector or broadcasters who have been given a public service mission. In the telecommunications case, the cost of those obligations may, where they represent an unfair burden for the operator concerned, be shared with other market players.
Some argue that given that such a framework exists within telecommunications, the absence of a similar framework for the public service mission in broadcasting will deter companies wishing to operate on an integrated basis or favour the position of those entering the telecommunications market from the media side. Others respond that convergence does not challenge the existence of different approaches, given the underlying objectives are quite different. They further argue that it is simply not possible to cost obligations relating to the public service mission in any meaningful way, and that comparisons with the experience of telecoms are unhelpful in this regard.
A further issue is who might in future be able to fulfil a public service mission or offer universal service? Obligations have traditionally fallen on a single designated organisation, (though that is now changing in the case of universal service in some Member States). However, the possibility of offering voice telephony services over a computer or a television, or the ability to use the Internet to read, watch or listen to broadcasters' programming illustrates the possibility that new platforms may play a role in meeting such obligations. The question arises as to whether this is an additional reason for such obligations to be properly identified.
Additionally, the issue is whether existing frameworks should be changed in order to create a coherent framework for both public and private broadcasting organisations, for example so that different organisations are allowed to bid to undertake such obligations, including organisations from outside the traditional sector. Where specific support in the form of industry or even public funding is available for the provision of such services, the issue arises, inter alia, as to whether that mechanism would need to be open to any organisation willing to be designated as fulfilling public interest obligations.
Convergence is already leading to a reassessment of approaches to the means of implementing objectives regarding content. This has already been the case with approaches to harmful and illegal content on the Internet (see Section IV.1). At its most basic, the central issue is not the validity of particular rules but whether the impact of technology on particular services requires a reassessment of the means of achieving the objectives in question.
Essentially this is an application of the principle of proportionality which means that current approaches must be assessed in the light of the specific characteristics of the service concerned. This means that there does not have to be a single standard applicable to the same content whatever the channel used for distribution. Instead, different standards might apply. For example, it is likely that the controls applied to advertising on a free-to-air broadcast would be considered inappropriate, if applied to a pay-TV programme or an Internet service, because of the specific characteristics of the service concerned.
The public service mission entrusted to public service broadcasters is recognised as of cultural importance and the organisations with responsibilities in this regard are entitled to appropriate funding, subject to compatibility with the rules of the Treaty. The recent Protocol on public broadcasting attached to the Amsterdam Treaty confirms this point.[57]
Convergence may however enable many more sources of audiovisual information to be accessed by viewers. Public authorities will need to monitor on a continuing basis the extent to which desired policy objectives are being achieved by normal market activity, including the impact of other media, and whether, as a consequence, regulatory obligations placed on broadcasters may be lightened.
Traditional public broadcasters will need to reappraise their role in the convergent environment. On the one hand, their market share is likely to diminish as users face an increasing choice in a market already near to saturation in terms of the individual potential for consumption of audiovisual services within a 24-hour day. Moreover, escalating prices for premium content could subject them to budgetary pressures that might outstrip the capabilities of existing funding mechanisms. The issue will be whether public broadcasters can continue to have access to attractive content in the face of fierce competition for the acquisition of programme rights, within the constraints of their existing funding mechanisms. Many are preparing to exploit their reputation and their customers' "brand loyalty" to compete with new pay-television broadcasters.
On the other hand, technological convergence offers public broadcasters a range of new possibilities, in terms of both activities and potential avenues to viewers and listeners. This can enhance their current role and provide valuable new sources of revenue alongside current funding. The regulatory framework should allow broadcasters to take advantage of these new opportunities. It should also permit them to benefit from economies of scale and scope where these also bring benefits for the consumer. However, if state funds intended to support a public broadcaster in fulfilling its public service mission were used to leverage and cross-subsidise these new activities or the use of new technological platforms, such as the Internet, then such practices would be subject to the Treaty rules on competition and on the freedom to provide services..
Ensuring Privacy and Data Protection. In order for convergent services to develop, users need to be assured that their privacy is adequately protected and, in particular, to have confidence in the security of information passed over the networks they use. Legislation has already been agreed at a Community level addressing data protection[58] and this will soon be complemented by specific rules governing data protection and privacy in telecommunications.[59]
Cryptography and digital signatures. A recent Commission Communication on digital signatures and encryption has recommended a number of actions aimed at ensuring security and trust in electronic communications. [60] Given the global character of electronic commerce, emphasis is being given to the need for the international availability of cryptographic products and services corresponding to the various needs of business and individuals.
Cultural diversity. The European Court of Justice, in a landmark case involving the media sector ("TV10" CJEC 23/9 of 9.10.94), has recognised that cultural policy objectives constitute public interest objectives that a Member State may legitimately pursue. Public service broadcasting has historically been one vehicle for achieving this. The Protocol on this subject that will be appended to the EC Treaty, as amended by the Treaty of Amsterdam, highlights the fact that "the system of public broadcasting in the Member States is directly related to the democratic, social and cultural needs of each society and to the need to preserve media pluralism".
At Community level, Article 128 of the EC Treaty provides that the Community "shall contribute to the flowering of the cultures of the Member States" including in the audiovisual sector, and that the Community shall also "take cultural aspects into account in its action under other provisions of the Treaty". The Commission intends to draw up a Green Paper in the course of 1998 specifically focusing on developing the cultural aspects of new audiovisual and information services.
Protection of minors and public order. While public interest objectives relating to the protection of minors and public order have traditionally been recognised at national and Community level (cf., for example, Art. 22 of the "Television without frontiers" Directive), the transactional nature of some convergent services will imply adjustments in the means whereby such objectives are met in order to ensure due respect for the principle of proportionality.
Additionally, the difficulty of enforcing safeguards in the context of harmful and illegal content on the Internet provides another example of how convergence is challenging traditional regulatory approaches to implementation, whilst not invalidating the principle that rules are seeking to protect.[61] The global nature of the platform and the difficulty of exercising control within a given Member State are leading to solutions which draw on self-regulatory practices by industry rather than on formal regulation, accompanied by technological solutions to ensure that parents take greater responsibility. It is against this background that the Commission has adopted a proposal for a Council Recommendation on the Protection of Minors and Human Dignity.[62] This aims to promote common guidelines for the implementation, at national level, of a framework for self-regulation to protect minors and human dignity in audiovisual and information services, whatever the means of conveyance.
Legislation at Community level meets a range of public interest objectives. This was also examined in Chapter IV.3. Current developments may well result in new ways of achieving such objectives. Where such objectives are achieved today by placing obligations on one or more market actors, (such as universal service obligations in telecommunications or a public service mission vested in certain broadcasters) new technologies and services may enrich the services being offered.
(A) Does the convergence phenomenon support or challenge the way in which public interest objectives are achieved in the telecommunications, media and IT sectors?
(B) Should such objectives be more clearly identified and. where they translate into particular obligations, should a wider group of actors be able to take on such obligations?
Chapter III highlighted the potential uncertainty resulting from separate and multiple regulation. Such uncertainty was seen as a barrier to current actors wishing to operate across the sectors affected by convergence, and to the wider delivery of services such as electronic commerce or financial services (banking, insurance, securities, etc.) over converged platforms.
Some commentators accept that there are barriers, but see these as neither insuperable nor inconsistent with the EC Treaty. In practical terms they simply represent normal divisions of activity common with any business operating across a number of sectors of the economy. They would argue that current vertical approaches to regulation are sustainable and provide a high degree of certainty for most market actors.
An alternative view sees these barriers as running counter to the logic of current technological and market trends. According to this view, a single regulatory model for all sectors within a converged environment, based on common principles, but perhaps maintaining certain distinct elements focused on the specific services offered, is required.
Others argue that any horizontal approach should reflect the technological reality of the possibility of any network carrying any service and therefore confine the development of a horizontal approach to issues affecting the underlying infrastructure. This would allow different treatment of the services provided via that network. Roles applied at a service level might perhaps follow current vertical divisions at the service level or perhaps redraw those divisions to reflect changes in technologies and markets.
In both of these cases, the approach is essentially to shift away from a vertical model of sectoral regulation and towards a horizontal approach which seeks to distinguish between the network or transmission layer within converging sectors and the services carried over those networks
Two studies carried out for the Commission[63] suggest that the replacement of current vertical structures with horizontal separations between service provision/content and conveyance appears to offer a possible solution to the types of the barriers identified in Chapter III.
Definitional issues of where services may fall will remain, but should be more future proof, being less linked to underlying technologies. The distinction between the two horizontal layers nonetheless permits distinct regulatory criteria to be applied to each layer, but with due recognition of the links between each layer.
Chapter III highlighted the impact on companies of having to deal with a number of different regulatory bodies for different aspects of their integrated activities. Ensuring that these barriers are lowered will be important in creating a climate for innovation and investment.
Were the idea of moving from vertical regulatory divisions to a more horizontal approach accepted, this might make it easier for business to benefit from a one-stop shop approach.
One important question is whether such rationalisation should lead to a single regulator dealing with all aspects - content as well as service provision and delivery, or whether a structure dividing responsibilities between services and transmission activities might be more appropriate, or indeed, multiple regulatory bodies at either of those layers. Some would view a single body as more able to maintain a coherent approach, integrating more seamlessly the public interest and economic efficiency aspects of regulation within one framework. Others would favour a continued separation in order to avoid risks of the public interest being compromised by economic priorities.
Nevertheless, inherent in the idea of convergence is the reality that a strict separation between service provision on the one hand, and transmission and carriage on the other may not be possible and could create difficulties in addressing issues of market power and vertical integration.
In looking at the options for a possible future regulatory model, account must be taken of the way in which responsibilities will continue to be shared between the Community and Member States and within Member States, between national, regional and sometimes local authorities. From a Community perspective, the EC Treaty defines on the basis of subsidiarity those areas in which the Community has a role to play. Such action may be taken, assuming it is an area for which the Community is competent, "only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can, therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community."
Chapter IV.1 raised the challenge of the convergence process to the principles underpinning current regulation, whilst Chapters IV.2 and IV.3 considered a range of substantive regulatory issues.
Chapter IV.4 discusses how those principles may be applied in future, separately to each sector, or "horizontally" across different market sectors. It also raises related issues about the number of regulatory bodies and the balance between Community and national level action.
(A) Do current developments require a reassessment of the way in which rules are applied to the telecommunications, broadcasting and IT sectors?
(B) Does the existence of different regulatory authorities or ministries responsible for different aspects of telecommunications, media and IT activities offer a workable structure for regulatory supervision in the light of convergence?
(C) Will convergence require a reassessment of regulatory responsibilities at a national, Community or international level, and, if so which areas?
Given the regional and global nature of many of the services being delivered, that subsidiarity test may be met. Diverse national approaches may harm rather than promote users' interests, could undermine the diversity which the internal market offers, and may well introduce distortions which favour the establishment of production facilities in regions where a lighter regime applies.
Globalisation amplifies the international dimension of convergence. One clear example is the continued rapid expansion of the Internet world-wide, which will undoubtedly give rise to further technological and industrial transformations, as well as to exciting social, cultural, and ultimately, commercial opportunities. These effects will not be confined to the European Community and North America only. They are just as likely to produce fundamental changes among our neighbours in Central and Eastern Europe, and more broadly, in the developing world. The global reach of the Internet has already shown a need for international solutions to a number of key issues such as security, intellectual property rights, customs, privacy, interoperability and cybercrime.
In contrast, many regulatory issues associated with telecommunications and broadcasting have until recently been focused at national or regional levels in the Community, given the national orientation of licensing in those sectors.
Multilateral dialogue on frameworks covering different aspects of telecommunications and information technology, and involving governments and industry, is currently being pursued in many international fora. The Commission, through a series of international summits on the Information Society, has been actively promoting a range of regulatory initiatives in the countries of Central and Eastern Europe.
Existing international organisations, such as the World Intellectual Property Organisation (WIPO), the ITU and the OECD have perceived the need to consider the potential impact of convergence and to launch Internet and electronic commerce related activities. Convergence was the theme of the ITU's Sixth Regulatory Colloquium.[64] In some cases, this has already led to agreement on principles or minimal rules. Examples include the two WIPO Treaties of December 1996 on copyright and certain related rights (the "WIPO Copyright Treaty" and "the WIPO Performance and Phonograms Treaty"), and the Bonn Declaration of July 1997.
The Council of Europe is currently working on aspects of the Information Society relating to human rights, democratic values and the freedom of expression and is expected to adopt Resolutions on these issues at the 5th European Ministerial Conference on Mass Media Policy in Thessaloniki in December 1997
Landmark global agreements such as the Information Technology Agreement (ITA), the Mutual Recognition Agreements on conformity assessment (MRAs), and the WTO/GATS agreement on basic telecommunications services (February 1997) have also contributed to a new global perspective on regulatory issues. The WTO agreement does not apply to broadcasting.
As these efforts are reinforced, it may become apparent that they need to take into account new factors such as convergence and globalisation, as well as the impact of these changes on economies beyond the industrialised world. For example, the Internet could give rise to spill-over between issues dealt with by different organisations and currently involves important new and less conventional actors, such as the Internet Society.[65] Furthermore, any formal principles and rules will most likely need to draw on some element of self-regulation by industry players.
In this context, it might be judged more appropriate to launch a process of international dialogue with the aim of reaching agreed solutions as and when problems arise in conjunction with technological, social and industrial developments. Such a process would be flexible and open. It would have no formally fixed time-frame and would be open to all actors concerned, including international organisations, the various Internet bodies (e.g. the Internet Engineering Task Force and the Internet Advisory Board), and technical experts. Such an international dialogue process could give rise to the creation of specific working groups with a view to focusing on specific issues such as digital signatures or customs and taxation. The overall aim of such a process, once it has been launched, could be to develop an international charter on global communications, though the scope and aims of such a charter remain to be defined.
Chapter IV.5 examines a range of international activities underway which are linked to convergence, as well as to specific aspects impacting on it, such as the Internet, Intellectual Property Rights, and Electronic Commerce. It also highlights the opportunities which convergence offers to our partners in Central and Eastern Europe, and more widely to the world's developing economies.
(A) Is further action required at an international level in light of convergence?
(B) What additional steps (if any) are required to encourage other countries, particularly, in Central and Eastern Europe, to create conditions within which current developments can be exploited?