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Convergence-or-Coexistence

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									Journal of Information, Law and Technology

Convergence or Coexistence?
Television and Telecommunications Policies Diverge in the Convergence Debate
Chris Marsden
School of Law, University of Warwick C.T.Marsden@warwick.ac.uk

This is a Work In Progress article published on 31 October 1997.

Citation: Marsden C, 'Convergence or Coexistence’, Work In Progress, 1997 (3) The Journal of Information, Law and Technology JILT). <http://elj.warwick.ac.uk/jilt/wip/97_3mars/>

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Abstract
Television, or audio-visual, and telecommunications policy in the European Union are discrete regulatory systems. This paper illustrates some of the theoretical difficulties of the attempt to marry the two policy fields, and the practical effect of the changes thus far implemented. It continues by examining policy initiatives which are currently under internal governmental scrutiny, and those already in the public sphere. It concludes by mapping the anticipated course of the policy debate in the next six months.

1. Introduction
‘The Impact of Convergence on Broadcasting Regulation’ is the subject of the Working Group on Audio-visual Policy and Regulation at the European Institute for the Media Forum on 7 November 1997. Mention is not intended as free advertising, but to illustrate three issues. [i] The impact of convergence is on broadcasting regulation. It is the encroachment of telecommunications regulation, or capture of a cultural activity by an economic analysis of the distribution of that activity, which is the real issue. [ii] This debate is clearly European in scope, allowing for national debates within this wider forum largely to illustrate the futility of divergent national approaches. [iii] This futility is indicated by the asymmetrical regulation of terrestrial cultural broadcasters in comparison with satellite economic broadcasters, as we may term them. The former will be represented at the EIM by Werner Rumphorst of the European Broadcasting Union; the latter by Ray Gallagher of BSkyB. The question

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they will be asked to analyse: Will broadcasting continue as a regulated activity dependent on state allocation of scarce spectrum, or become fragmentary lowestcommon-denominator channels amongst thousands on the Internet?

The Bangemann Report (Bangemann 1994) presented to the Council of Ministers at the Corfu Summit in June 1994 contained an uncompromising deregulatory message. It Europeanised the Gore/Clinton ‘Information Superhighway’ of early 1993 cliché to the ‘Information Society’ cliché which now dominates in Brussels. Its conclusions were that European answers to the American challenge, which since Jean ServanSchreiber first wrote (Servan-Schreiber 1967) has transmutated from industrial to information, were to be found by Anglo-Saxon means.

2. From the Sublime to the Ridiculous
The Internet, for all its power to raise moral panics in pornography and privacy amongst commentators and legislators, and its contrasting inability to approach video transmission standard prior to the introduction of digital modems, can be seen as an aid to the argument for continued regulation. Between approximately late 1992 and early 1995, the assumption was that multichannel growth would be concentrated in broadband switched systems of interactive video (Oftel 1995), rather than the narrower-bandwidth of the Internet. Though this assumption still holds, it is clearly a longer-term prospect than its prophets predicted at that time. The Internet is uncontrolled and seemingly uncontrollable: in itself, a challenge to any regulator. As a version of narrowcasting, it is not dominated by multinationals, but by amateurs. Its exponential month-on-month growth has continued in the period since early 1995, when it reached critical mass and changed the strategy of even Microsoft (Gates
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1996). Consequently, the product is prone to content both illegal and incompetent, though paradigmatically contemporary. The very profusion and omnipotence of Internet lends itself to an extenuated regulatory tendency. Its distortion of the multichannel debate has enabled public service broadcasters and their supporters in national and European legislative debate to secure breathing space against their formerly dominant multinational opponents and state sponsors in the convergence debate. It is far less certain in October 1997 than it was in June 1994 whether convergence of communications will mean the subservience of television to telecoms. This article argues that these policy manoeuvres may have been historically predictable, but that the modest nature of legislative change is a result of the largely unpredicted rise of the Internet in 1994 to date. Had the far more expensive and complete solution of broadband cable supplemented by satellite distribution proved as dynamic in its growth as Internet, there would have been far less regulatory lag than has been seen. The barriers to entry and control through self-regulation ultimately offered through cable would have proved a convergent technology far harder to demonise. It may still prove to be the case that cable and satellite, in their domination by the multinational and their content conformity and conservatism, will overcome the demonisation portrayed by policy makers particularly in the Francophone community. It is now far less certain than in 1994.

3. From Paradigm to Pragmatism
This policy change reflects a wider political reality, expressed in five factors. The legislators in national Parliaments of the larger Member States are now dominated by Socialists or reconstructed Socialists in France, Britain and Italy, in contrast to the
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situation in 1993-5. The European economy is recovering from its recession of 19924. The 1994 European Elections were massively distorted by the UK’s first-past-thepost voting system, under which Labour secured a disproportionate increase in MEPs (30 more than under proportionality). The Treaty of European Union allowed for codecision under Article 189b of the Treaty of Rome, giving Parliament power to play a more active role in the legislative process. The accession of Sweden, Finland and Austria has added to the number of member states which view broadcasting as a national and culturally specific activity. The combination of these factors has given cultural advocates in Brussels a more favourable set of circumstances than existed in the recent past.

4. Horizontal From Vertical
The DG XIII Green Paper on Regulation of Communications Convergence, longawaited, was completed in mid-September 1997. It is circulating within the Commission, prior to adoption and publication in November/December. While its contents are obviously confidential, it can broadly be assumed that it will suggest horizontal regulation, rather than vertical. There will therefore no longer be a market for television or telecoms, but rather a market for distribution of electronic communications in various forms. As Commissioner Bangemann stated in Geneva on 8 September 1997
We may need to simplify the current framework and to perhaps bring together legislation on the provision of infrastructure, services, content and on conditions for access to that content (via TV, computer, or telephone networks)...10 years after the 1987 Green Paper [which lead to telecoms liberalisation], we intend the Convergence

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Green Paper of 1997 to be a platform for defining the policy response to this evolving communications and media environment over the next 5 years.

This removal of ‘pigeonholing’, as Richard Hooper has termed it (Hooper 1996 at 230), will allow synergistic monomedia and multimedia operators to merge with telecoms operators. Radio and TV companies will be allowed to merge with cable companies, subject to general competition law. British Telecom in Britain will be allowed to enter the television market, should it wish. (As its merger with MCI was abortive, it may find the capital to do so.) The removal of ‘Chinese walls’ between rival distribution platforms - cable, satellite, terrestrial - will require firmer regulation of vertical value chains, to prevent the re-emergence of oligopolies at any one stage. Bangemann in Venice on 18 September 1997 acknowledged the need for continued economic regulation: ‘a single European regulatory authority for communications may one day prove necessary’. He appeared less convinced of the need for content regulation:
a new approach is required as content becomes network-independent and as control of content (and responsibility for its use) shifts from government to the individual.

Regulators will seek to avoid replacing a state-sponsored monopoly in telecoms or television with a state-coerced monopoly in premium sports rights, for example. Separation of transmission from distribution, channel packaging, subscription, conditional access, programme navigation, and decoder software, is already recognised in pay-television competition analysis (Cowie and Williams 1997). The ‘content distribution industry’ is, however, prone to market failure, as gatekeepers emerge in various links in the value chain: this is common to emerging hightechnology industries (Marsden 1997). The early signs are that competition regulation has proved insufficiently co-ordinated between national agencies, as well as EU
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institutions. The results are unfortunate: either ‘target’ companies perceive persecution by regulators ignorant of their industry, or those same companies employ regulatory arbitrage to secure minimal regulation in jurisdictions competing for their expertise. Bangemann’s espousal of a telecoms competition regulator modelled on the UK telecom regulator Oftel is therefore attractive.

5. Licensing: The Insuperable Barrier
In moving from vertical segmentation of communications to this horizontal convergent model, states will also reform their regulatory agencies. The justification for separate telecoms and television licensing authorities may then appear undermined. The difficulty is in the licensing structure for terrestrial television. In telecoms, cable and satellite television, the use of ‘class licences’ is common: similar obligations are placed on similar sized and resourced rivals. In television, the parcelling of various economic and cultural rights and duties is sufficiently complex to present serious difficulty in unbundling these rights. While the separation of distribution from programming is theoretically attractive, in practice the federal or cross-subsidised systems which represent the government-licensed status quo in most European countries are reliant on the existing vertical regulator. The value links may prove indissoluble, in practical and political terms. Reconstructed social democrats claim that the division between culture and economic goals of regulation is mythical (Smith 1997): it may rather be that any proposed division is idealistic.

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6. Public Service: Ghettoised?
A solution which is promulgated politically is that public service broadcasting be ‘ringfenced’ from competition concerns in deregulated markets, thus reaffirming the pathology which currently pervades free-to-air television. This is crudely that public service broadcasters are given the resources to finance high-quality programming, in exchange for a stakeholding agreement of varying degrees of formality. Resources may include viewer taxes, free or subsidised use of airwaves, limiting of competition to produce an advertising oligopoly, or licensing of additional services. Stakeholder obligations may include training and minority group employment, independent and original production quotas, European programming quotas, Universal Service Provision. The complexity of such arrangements mitigates against wholesale reform. In protecting these stakeholder/public service arrangements, governments avoid a radical solution such as licensing or auctioning public service components. This prevarication enables competitors to erode their market share, reducing resources and legitimacy. The longer term prospect under this scenario is ‘ghettoisation’. The Member States have agreed a Protocol to the Treaty of Amsterdam which protects public service broadcasters from the full effect of competition laws. This may prevent the immediate dissolution of the European Broadcasting Union but it will not secure the long-term future of these channels.

7. Institutional Turf War - Europe
Following the Bangemann Report, Bangemann’s own think-tank and cheerleader for the Information Society, the Information Society Project Office , was established to co-ordinate DG III (industry) with DG XIII (telecoms and research) into a sort of super-ministry for the Information Society.
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DG X (education, culture, audio-visual) initially seemed powerless in the face of this Bangemann challenge. In early 1995, rumours were rife in Brussels (as ever) that DG X would be dismembered and the audio-visual transferred to DG XIII. With new Commissioner Oreja and Director-General Papas, DG X is now asserting an independent future for public service broadcasting ringfenced from the deregulatory environment of telecoms. This sea-change was reflected in the distinctly frosty reception accorded to the ‘Anglo-Saxon consultancy’ report (KPMG 1996) commissioned by DG XIII, published in September 1996. The dispersal since 1994 of the initial euphoria surrounding the new technological paradigm is typical of the reaction to new technology, and was repeated elsewhere in Europe, notably in the UK government’s pragmatic Broadcasting Act 1996 following the more radical goals of the May 1995 Green Paper (DNH 1995). The European Parliament’s support for cultural goals in information policy have been vouched in terms which portray deregulation as quite literally a moral hazard. The Protection of Minors and Human Dignity (Whitehead 1997) are the rhetorical goals to which the liberalisers have apparently found themselves opposed. Point 9 of the Whitehead Report is quoted in full:
[The European Parliament] insists that any future work on both regulation and self-regulation of converging communications shall cover all of them, so that harmful content on the Internet is dealt with in the broad spectrum of point-topoint and multipoint electronic communication.

The Parliament, having in a bitter battle lost in its attempt to exert televisual regulation over Internet and video-on-demand services (in the revised Article 1 of the ‘Television Without Frontiers’ directive, EP 1997 , has clearly retained its opposition to deregulation. Whitehead recognises ‘the general instinct for deregulation’, and selfJILT Issue 1997 (3) http://elj.warwick.ac.uk/jilt/wip/97_3mars/ Work In Progress

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regulation as a subset thereof, though acknowledging that broadcasters and telecoms experts will lean in different directions. The Economic and Monetary Committee of the Parliament , as will be seen in section 10 below, adopts a different perspective. Critically, the most active members of the EMC are alternates on the Media and Culture Committee, as co-ordinators for Christian Democrat (Hoppenstedt) and Liberal (Larive) groups. There is therefore active involvement and indeed direction by EMC members in Media and Culture Committee business.

8. Institutional Turf War - UK
UK communications policy was driven in 1993-6 by the economic Department of Trade and Industry, especially in the period 1993-5 under the formidable President of the Board of Trade Michael Heseltine. The role of the Department of National Heritage (now renamed Culture, Media and Sport) was reduced to little more than platitude until the Conservative defeat in May 1997. At the Brighton European culture ministers’ meeting on September 29, 1997, Jack Lang characterised UK policy under Conservative ministers as ‘the victory of ignorance over extravagance’. Though recognising the priority of cultural goals, the present Secretary of State Chris Smith has been careful to avoid an ‘extravagant’ appearance (Smith 1997). His view is of a more or less harmonious coexistence of culture and economics, a view apparently shared by his Italian counterpart and Deputy Prime Minister Veltroni. Since May, Smith has repeatedly indicated that his department is responsible for a greater share of GDP than manufacturing industry. The result of this coexistence is that Smith and President of the Board of Trade Margaret Beckett have co-authored a letter to the Prime Minister, indicating the pressing need for a Communications Act in 1999-2000, replacing existing vertical regulatory
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structures with horizontal. There will therefore be a debate in 1998 within the UK, as in Brussels, regarding convergence. Labour policy radically liberalised under the stewardship of Broadcasting Spokesman Lewis Moonie in 1995-7. Policy in this period ostensibly sought to merge ‘Ofcom’ from ITC and Oftel before the end of the century, in a model derived from the US FCC. This found support amongst influential academic and policy analysts (Collins and Murroni 1996). The sobriety which European Commission and UK government policy reattained in 1995-6 as Internet grew, only reached Labour policy in May 1997, with the appointment of Smith as Secretary of State. An independent future for the Radio Authority, Independent Television Commission (ITC) and Oftel is the medium term policy.

9. Regulatory Body Turf War - UK
The politicians may have become reconciled to a ‘new style of politics’ (the mantra of the leaders of Labour and Liberal Democrat parties) within Whitehall communications governance, but the regulators’ relationship remains strained. The abrasive and effective regulation of Oftel under its dynamic Director, Don Cruikshank, has succeeded in impressing the European Commission with its effectiveness, but offending the television regulator ITC with its tactlessness, notably in Oftel advice to ITC regarding the BDB digital multiplex licence award in June 1997. (The UK competition office, the Office of Fair Trading, was similarly affected in the Oftel summission to the pay-TV enquiry published in February 1996). Criukshank’s resignation with effect from March 1998 may succeed in removing the personality issue from the dispute.

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10. Ofcom - The Bonfire of the Regulators?
In policy terms, detente between Oftel and ITC views of regulation has been rapid since their initial skirmishes in 1995. The publication of Beyond the Telephone... (Oftel 1995) was interpreted as a take-over attempt by Oftel. In 1995, momentum was developed to transform communications regulation by merging all content regulators into an ‘Ofcom’, a policy espoused by Labour’s superhighway policy review under Smith’s chairmanship. Though Oftel views broadband as the digital broadcasting future, a view shaken but firm despite the explosive growth of Internet, ITC continues to believe in the dominance of terrestrial free-to-air TV. In the USA, the major networks account for over 60% of all TV viewing, though in continuing decline. ITC has expressed its belief in a prolonged period of ‘coexistence’ between on-demand interactive services and traditional TV (ITC 1995). Both regulators have recently submitted evidence to their respective Commons Select Committees. ITC saw the value in merging all content regulation within its aegis, including the presently self-governed BBC. The National Heritage Select Committee was ‘not persuaded that now is the time to change to a single regulator’ for communications (National Heritage, 4th Report, 1996-7 at xviii, para 74). The Trade and Industry Select Committee believed that ‘an earlier rather than later review would be appropriate’ (Trade & Industry, 3rd Report, 1996-7 at xix, para 44,). The evidence presented to both bodies was similar: their difference of view is as to the timing of convergence rather than the necessity to amend current regulation. The crux, as earlier discussed, will be the licensing of dominant television broadcasters.

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11. Some Preliminary Observations
The OECD, G7, and ITU have exerted liberalising influences on the convergence debate, as evidenced in Bangemann’s international communications Charter Initiative in Geneva this September. The casual observer should not be misled into the impression that convergence in favour of the telecoms model is inevitable, nor that the policy option is unanimous even inside DG XIII, the home of the Green Paper. Garnham’s report to the Steering Committee of Legal Advisors was couched in very cautious terms, in keeping with his lengthy experience in communications policy formation and analysis. Though functions are leaching from television to telecoms regulators, for instance the transmission and distribution of digital pay-TV from ITC to Oftel in the UK, consolidation of the existing content regulators provides greater scope for legislators to simplify structures. Thus in the UK, ITC has suggested that it regulate in place of the Broadcasting Complaints Commission and BBC self-governance. The independent future of a Radio Authority separated from ITC in the 1990 Broadcasting Act is vociferously argued by its Chief Executive Tony Stoller. Collins for the Institute of Public Policy Research identified ten separate regulators, which could be reduced to three (Radio Authority, ITC, Oftel) without perverse results for industry structures.

12. Democracy and Convergence - The Autumn Timetable
The European Parliament and Commission are the venues for convergence debate this winter. The European Parliament will debate the Hoppenstedt Satellite Action Plan on 20 October, which follows his work on Trans-European Telematics Networks and Television Without Frontiers. The Whitehead Report was adopted by the Culture
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Committee on 2 October. In the following months Parliament will return to the issue of convergence, especially in regard to commercial communications (note Larive’s Report to Parliament and media pluralism (Hitchens 1994, Beltrame 1996), on which the Internal Market Directorate, DG XV, is expected to issue proposals in the final quarter. The Convergence Green Paper’s release to Parliament should also lead to lively debate. It may be, however, that any new policy direction will await the quintennial ‘Audiovisual Assizes’ in Birmingham on 6-8 April 1998, hosted by the then-President of the Culture Council, Chris Smith. The expectations of a grand, if pragmatic, social democratic alliance (Britain, Italy, France), to attempt reconciliation of the vertical and horizontal regulators, will rest on the UK government’s actions during the next six months. The political settlement of the culture/economics debate is likely to be decided in this period. The outcome will decide the future development of the television industry, the wider communications industry, and European consumers’ future direction into the Information Age. At a policy level, it will also reveal a great deal of the institutional and constitutional future of the European Union in the decade to come.

References
Bangemann, Martin, et al (1994) Europe and the Global Information Society, The Report of the High Level Group. Beltrame, Francesca (1996) 7 Util.LR Harmonising Media Ownership Rules: Problems and Prospects at p172 Collins, Richard and Murroni, Christina (1996) New Media, New Policies Department of National Heritage (1995) Media Ownership: The Government’s Proposals Cowie, Campbell and Williams, Mark (1997) Telecommunications Policy
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European Parliament (1997) European Parliament and Council Directive amending Council Directive 89/552/EEC on the co-ordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities Gates, Bill (1996) The Road Ahead Hitchens, L.P. (1994) 57 MLR 4 Media Ownership and Control: A European Approach at pp585-601. Hooper, Richard (1996) Chapter 16 in Media Ownership and Control in the Age of Convergence KPMG (1996) Public Policy Issues Arising From Telecommunications and Audiovisual Convergence, A Report for the European Commission ITC (1995) ITC Response to the Oftel Consultative Document at paragraph 58, p15 Marsden, Chris (1997) 8 Util.LR 4 ‘Structural and Behavioural Regulation in UK, European and US Digital Pay-TV’ at pp114-119 Oftel (1995) Beyond the Telephone, the Television and the PC Servan-Schreiber, Jean (1967) Le Defi American (The American Challenge) Smith, Chris (1997) Speech to European Culture Ministers Channel 4/Arte Fringe Meeting, Brighton Labour Party Conference, 29 September 1997 Whitehead, Phillip (1997) Draft Report on the Commission Green Paper on The Protection of Minors and Human Dignity in Audio-visual and Information Services (COM[96]0483 - C4-0621/96) PE 221.804 of 24 April 1997.

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