WRITTEN QUESTION E-2941/96 by Mary Banotti (PPE) to the Commission (8 November 1996)

Subject: Regulation of conditional access and related technical services

On 30 May 1996, DG IV took the view that the SIMLock feature operated by GSM/DC21800 network operators, which effectively ties the customer to one GSM operator or service provider, was potentially anti-competitive. DG IV said that the handset could be unlocked upon demand by the consumer, to prevent anti-competitive effects of the feature vis-à-vis existing or new operators and to avoid a reinforcement of the division of the mobile phone market along national lines.

Is it not the case that there is a parallel between this case and the situation emerging for digital pay-TV, where vertically-integrated operators of conditional access systems are likely to be linked to one pay-TV broadcaster which also operates a subscriber management and authorization system, and which other broadcasters will have to use?

What measures has the Commission taken to ensure that its Directive 95/47/EC ((OJ L 281, 23.11.1995, p. 51. )) has been implemented fully and in similar fashion throughout the Member States?

Does the Commission intend to take action to ensure that other broadcasters may, if they wish issue and authorize their own cards to a decoder box with an embedded proprietary CA system?

Since it is evident that consumers will be reluctant to buy more than one decoder box, what steps is the Commission taking to ensure that, in cases where there is an embedded proprietary CA system in the decoder box, it can receive all available services, whether in the clear or pay? Will that apply also in cases where a pay-TV broadcaster wants to authorize its subscribers to the smart card independently?

Answer given by Mr Van Miert on behalf of the Commission (11 December 1996)

The use of technological devices which tie users is a common feature of both GSM/DCS1800 mobile telephone handsets and subscriber management and authorization systems for digital pay-television. It is not clear, at this stage, the extent to which the effect of such devices on competition and consumers in the mobile telephone markets can be said to be similar to the likely effect on the digital pay-television markets.

GSM/DCS1800 mobile technology is used throughout the European economic area (EEA). Some companies providing GSM/DCS1800 services in Europe subsidise the sale of mobile handsets as a means of increasing sales. This subsidisation leads to an increased risk of handset fraud, and the SIM lock feature can be used to help reduce such fraud. To the extent that companies use the SIM lock for this purpose, there is no competition concern. However, the feature also has the effect of foreclosing competition in the market for the provision of mobile services. If a customer can only use a particular handset on a particular network, then the customer will not be able to choose freely the service provider after the end of any minimum contract period. Generally, therefore, the Commission accepts that the SIM lock can be used as a means of recouping monies used to subsidise the sale of handsets, but, beyond that, cannot be used in order to tie customers to a particular network, thus limiting competition. This would be particularly acute where the SIM locking practice was being used by a dominant mobile operator.

GSM/DCS1800 is an European telecommunications standards institute (ETSI) standard and the SIM lock feature is a proposed ETSI standard. The Directive on the use of standards for the transmission of television signals 95/47/EC ((OJ L 281, 23.11.1995. )) does not insist on a common (ie standard) interface, in order to encourage innovation and risk-taking in introducing the new technology for digital broadcasting services. While a common interface would enable third party broadcasters to issue and authorise their own cards to a decoder box, nevertheless most pay-television providers will insist on having a proprietary element in the decoder box to deal with conditional access in addition to the standardised decoder. This will be done as a protection against piracy and as a protection of investment against 'free-riders'. Thus, whereas with the SIM lock, the problem related to a practice of limiting the interoperability of a handset and the conditions under which full functionality should be restored, the potential problem with set-top boxes would appear to be more possible use of intellectual property rights to deny access to a facility which may be necessary for the provision of a service. Treatment of the problem would depend therefore on the facts of the particular case.

Another more significant difference between the two situations is the Commission's concern that the SIM lock should not prevent users from taking out subscriptions simultaneously in other Member States in order to benefit from any lower call rates which may be available there. By contrast, television markets are still naturally partitioned on a national or regional level, due to language or cultural changes. The issue of consumers switching to broadcasting service providers in other Member States in order to obtain better value for the same product does not therefore arise. The services provided in each Member State, whether through or without conditional access, cannot be said to be at present substitutes for the purposes of consumers. This situation may of course change in the future.

With regard to the implementation of the Directive, to date the Commission has not received official notification from any Member State of the transposition of this Directive into national law. As is normal in such circumstances, the Commission is opening infringement proceedings for non-communication under Article 169 of the EC Treaty. Once Member States' notifications have been received, the Commission will check the transposition for conformity with the Directive.

Although the Directive does not require the use of any particular technology for conditional access, it does forbid the abuse of proprietary technology for anti-competitive purposes and requires fair, reasonable and non-discriminatory terms for commercial relations between conditional access providers and broadcasters. It also requires Member States to set up appropriate dispute resolution procedures to resolve difficulties.

Digital broadcasting services are about to start in the EEA. In the interest of consumers, the Directive facilitates a one box solution by, for example, enforcing common scrambling and common decoding, and it bans anti-competitive behaviour. As it is too early for specific examples to emerge of competitors or consumers disadvantaged by a pay-television operator in a dominant position in relation to the monopoly supply of digital conditional access systems, it is not possible to give precise answers at this stage as to how the Community competition rules or any other powers available to the Commission will be used in such a situation.