Source: EURLEX
Language: en
Format: md

**EXECUTIVE SUMMARY**

There is widespread agreement that convergence is occurring at the technological
###### level. That is to sai that digital technology now allows both traditional and new

communication services - whether voice, data, sound or pictures - to be provided
over many different networks.

Current activity in the market suggests that operators from the sectors affected by
convergence are acting on the opportunities provided by technological advances to
enhance their traditional services and to branch out into new activities.
Telecommunications, Media and Information Technology sectors are seeking crossproduct and cros~-platform development as well as cross-sector share-holding.
Examples of new products and services being delivered include:

   Home-banking and home-shopping over the Internet,

  Voice over the Internet;

  E-mail, data and World Wide Web access over mobile phone networks, and the
use of wireless links to homes and businesses to connect them to the fixed

telecommunications networks;

  Data services over digital broadcasting platforms;

  - On-line services combined with television via systems such as Web-TV, as well
as delivery via digital satellites and cable modems;

  - Webcasting of news, sports, concerts and of other audiovisual services.

Such developments represent concrete examples of an Information Society in
Europe. They show its potential to touch the lives of every citizen. They also
highlight a significant change in the range and diversity of traditional
telecommunications and media services.

The implications of these developments are far reaching. Convergence is not just
about technology. It is about services and about new ways of doing business .and of
interacting with society. The changes described in this Green Paper have the
potential to substantially improve the quality of life for Europe's citizens; to better
integrate Europe's regions into the heart of the European economy, and to make
businesses more effective and competitive on global and national markets.

The emergence of new services and the development of existing services are
expected to expand the overall information market, providing new routes to the citizen
and building on Europe's rich cultural heritage, its potential for innovation and its
creative ambitions.

The global nature of communications platforms today, in particular, the Internet, are
providing a key which will open the door to the further integration of the world
economy. This will open opportunities and challenges not only for the European
Union, but also for our neighbours in Central and Eastern Europe, the Mediterranean,

ii

and more broadly, in the developing world. At the same time, the low cost of
establishing a presence on the World Wide Web, is making it possible both for
businesses of all sizes to develop a regional and global reach, and for consumers to
benefit from the wider choice of goods and services on offer. Globalisation will
therefore be key theme in future developments, as changes in Europe are mirrored
by developments all over the World.

If Europe can embrace these changes by creating an environment which supports
rather than holds back the process of change we will have created a powerful motor
for job creation and growth, increasing consumer choice and promoting cultural
diversity. If Europe fails to do so, or fails to do so rapidly enough, there are real risks
that our businesses and citizens will be left to travel in the slow lane of an information
revolution which is being embraced by businesses, users and by Governments
around the World.

Governments and policy makers will have a key role in ensuring that such an
environment is in place. However, beyond the regulatory framework which is the
central focus of this Green Paper, efforts will continue to be needed, as recognised at
the recent Jobs Summit, to equip Europe's workforce with the skills which the

Information Society requires. Continuing support should be given to research and
development activities. Governments, regional and local authorities, as well as the
European institutions must lead, by example, by fully embracing the technologies and
services which the process of convergence is making possible.

The future regulatory environment will be of crucial importance. The European Union
has already developed a comprehensive framework for managing the transition in
telecommunications from a monopoly to a fully competitive world from 1 January
1998. We have also put in place a framework supporting an internal market for
broadcasting. Getting the right regulatory framework must be firmly placed within
these existing achievements. At the same time, this Green Paper represents a
milestone in allowing the Community to look beyond the 1998 deadline and to assess
the implications for the sectors affected by convergence.

This Green Paper argues that the development of new services could be hindered by
the existence of a range of barriers, including regulatory barriers, at different levels of
the market. There are, however, differing views on the adequacy of existing
regulatory frameworks to deal with the changing environment. One view is that the
development of new products and services is being held back by regulatory
uncertainty - that existing rules were defined for a national, analogue .and .monomedia environment, but that services increasingly cut across different traditional
sectors and geographical boundaries, and that they may be provided over a variety of
platforms. This calls into question the underlying rationale beneath regulatory
approaches in the different sectors affected by convergence. Proponents of this view
would argue that such regulatory uncertainty holds back investment and damages the
prospects for the implementation of the Information Society.

An alternative view would hold that the specific characteristics of the existing
separate sectors will limit the scope for service convergence. It further would contend
that the role of the media industry as the bearer of social, cultural and ethical values
within our society is independent of the technology relied upon to reach the
consumer. This would mean that regulation of economic conditions and that of the

iii

provision of information services should be separated to ensure efficiency and
quality.

These matters need to be debated and resolved. Finding solutions will need to take
account of the full range of interests in the various sectors affected by convergence.
At the same time, the potential for change will be felt in different ways and at different
levels (e.g. technology, industry, services and markets). Whilst digitalisation means
that convergence is well advanced at the level of technology, this Green Paper does
not automatically assume that convergence at one level inevitably leads to the same
degree of convergehce at other levels. Equally, there is no assumption that
convergence in technologies, industries, services and/or markets will necessarily
imply a need for a uniform regulatory environment.

This Green Paper responds to the requirement for debate. It is consciously
interrogative. It analyses issues, it identifies options and it poses questions for public
comment. It does not take positions at this stage nor reach conclusions.

In **Chapters I and** II, the Green Paper analyses the convergence phenomenon - its
technological underpinnings, current developments in the market, and their possible
impact on the telecommunications, media and information technology sectors.

In **Chapter** Ill, actual and potential barriers are identified which may hold back these
technological and market developments. Some of these reflect current market or
industrial issues of the sectors affected by convergence, whilst others arise from
current regulatory approaches. Some of these issues are already being dealt with in
Community initiatives, (for example, in areas of intellectual property, media
ownership, electronic commerce and digital signatures) and where this is the case
those initiatives are identified. In other cases, these barriers serve as a basis for
considering the need, if any, to adapt current regulatory frameworks in the light of the
convergence phenomenon.

**Chapter** IV provides a detailed discussion of issues associated with existing and
possible future regulatory frameworks or approaches. These issues fall into eight
broad areas:

      - Definitions

      - Market entry and licensing

      - Access to networks, to conditional access systems and to

content

      - Access to frequency spectrum

     - Standards

      - Pricing

      - Individual consumer interests.

The chapter concludes with a discussion of public interest objectives, options for
possible future regulatory models and issues raised at an international level.

iv

Finally, in **Chapter** **V,** **a** set of principles for the future regulatory policy in the sectors
affected by convergence are set out, and possible options for future regulatory
approaches are identified as a basis for discussion.

The Commission believes that the 5 months public consultation period will allow
broad participation and debate around issues which are important for citizens,
business and for the further development of the Information Society. Comments can
be sent in paper or electronic form, and the debate will be assisted by the creation of
a specific web-site on which electronic comments can be accessed. [1 ] There will also
be public hearings during the course of the consultation. On the basis of the
comments received, the Commission intends to produce a Communication by June
1998.

This Green Paper represents a step on the way to securing the benefits of
convergence for European social and economic development. The June
Communication, setting out the results of the public consultation, will allow political
positions to be taken by the European Parliament, the Council of Ministers, the
Economic and Social Committee and the Committee of the Regions, and for clear
objectives for future policy to be established.

This Green Paper initiates a new phase in the European Union's policy approach to
the communications environment. As such it represents a key element of the overall
framework put in place to support the development of an Information Society. It
builds on the current strengths of the frameworks for telecommunications (launched
by the landmark 1987 Green Paper on telecommunication [2] ) and for media
(established by various Community legislative initiatives). This Green paper builds on
these achievements, and offers all interested parties an opportunity to comment on
the future shape of regulation, in the post-1998 communications environment, in the
sectors affected by convergence.

This first step is intended to pave the way for the development of an appropriate
regulatory environment which will facilitate the full achievement of the opportunities
offered by the Information Society, in the interests of Europe and its citizens as the
21st century begins.

1 World-wide Web address is _http://www.ispo.cec.be/convergencegp._ Both written and electronic comments will
be made available in paper form in parallel with the publication of the Communication on the results of the
consultation, subject to any requests made for confidentiality.

2 COM(87) 290 final

v

,.,,;.:;. ... '.

I.

1. Convergence - defining its scope

2. The enabling role of technology

3. Current market developments

4. Summary and questions

II.

1. The social and economic-context

2. Market trends

3. The consumer perspective

4. Summary and questions

Ill. Barriers to Convergence

1. Existing barriers

2. Potential barriers

3. Question

IV. Regulatory 'rjlpl_i~at\qp~',

1. Challenge to existing regulatory approaches

2. Tackling the barriers - The regulatory issues

3. Meeting public· interest objectives

4. Options for a future regulatory model

5. Issues at an international level

v. Principles and options· for theJuture

1. Principles for future regu.latory approaches in the sectors affected by

convergence

2. Options for regulatory development

3. - Timetable for future action

4. Conclusions

Annex: Existing regulation

vi

iii

1

8

15

18

33

37

The Information Society is becoming a reality;
Its development is fuelled by the rapid
technological change which is transforming the
information industries. The nature and speed of
this transformation may pose new challenges to
policy-makers.

One of the most significant factors is the
increasing use by different sectors, notably the
telecommunications, media and information
technology (IT) sectors, of the same
technologies. Evidence of such convergence
has been mounting in recent years with the
emergence of the Internet and with the
increasing capability of existing networks to
carry both telecommunications and broadcasting

services.

The phenomenon of convergence is relatively
new and a range of different views exist on what
its implications are for society and for economic
activity. There is broad agreement that
developments in digital electronics, and software
are creating the technological potential for a new
approach to the delivery and consumption of
information services. There is less agreement
on how much these developments will change
existing practices and over what time-scales.
Some consider that convergence will lead to the
complete and rapid tra~sformation of existing
telecommunications, media and information
technology services in such a way that these
currently separate groups of services will merge
into one another, substantially blurring the
previously clear distinctions between them.

Others feel that the specificity of the existing
separate sectors will limit the scope for service
convergence, and that the media industry has a
role as the bearer of social, cultural and ethical
values within our society, independent of the
technology relied upon to reach the consumer.
This would mean that regulation of economic
conditions and that of the content of information

services should be separated to ensure
efficiency and quality. Others believe that, if it
does occur, it will evolve over an extended time
scale.

It is nevertheless clear that the implications of
these developments are potentially far reaching.
The emergence of new services and the
developments of existing services is expected to
expand the overall information market. This will
provide new opportunities for economic growth
and employment. At the same time the new

communication services environment will also

provide opportunities to enhance the quality of
European citizen's lives, by increasing consumer
choice, facilitating access to the benefits of the

Information Society and promoting cultural
diversity.

These developments are therefore positive for
European economic and social development and
should be encouraged. F'ublic policy will need to
provide a supportive environment for
convergence in order to ensure that the potential
opportunities are grasped in a timely fashion.

What is needed now is wide ranging and deep
debate on the convergence phenomenon and its
implica!ions as an input to such policy
formulation. The objective of this Green Paper
is to start such a debate.

This debate needs to be set into context in

respect of other important Commission actions
in the telecommunications, media and
information technology sectors. In particular,
this debate is central to the future

communications landscape following the full
liberalisation of telecommunications services

and infrastructure by 1 January 1998. The
process started by the Green Paper should
ensure that during the overall review of the
effectiveness of the 1998 regulatory package for
telecommunications (to take place at the end of
1999), full account can be taken of the impact of
convergence on that sector. Furthermore, the
Cable Review, carried out in the light of
liberalisation and more specifically as a result of
the commitment contained within the Cable
Directive [3 ] and the (telecommunications) · Full
Competition Directive [4 ] is the subject of a
separate Commission communication. The
review aims to create an open and procompetitive market structure in the provision of
telecommunications and cable TV networks

which may have a significant impact on the
markets affected by convergence. In particular,
it will encourage competition and prevent the
emergence of new anti-competitive gatekeeper
positions or bottlenecks. Vigorous competition
in these areas will encourage the development
of innovative new services which will benefit

consumers in the European Community, and will
provide European industry and service providers
with the expertise to compete on global markets.

3 Commission Directive 95/51/EC, OJ L256, 26.11.95

4 Commission Directive 96/19./EC, OJ L74, 223.96

vii

Against the background of ensuring a
competitive basic market structure, the
timeliness of this Green Paper stems from the
fact that new markets may develop rapidly, and
that they will be essentially global in nature. If
the applicable regulatory frameworks in
individual Member States or, indeed, in Europe
are not appropriate to the development of these
new markets and even hinder their development,
then Europe may find itself at a competitive
disadvantage _vis-a-vis_ its more flexible global
competitors. This could restrict consumer
participation by limiting choice and weakening
consumer confidence in the new services, and
have negative consequences for economic
growth and employment creation in Europe.

The Green Paper addresses the nature of the
convergence phenomenon, and focuses on the
provision of services and the underlying
networks over which they are.c.arried. It further
deals with the implications for both the shape
and substance of regulation which may arise
from convergence. Although the Green Paper
deals with certain aspects of the regulatory
framework for service provision, any future
initiatives in this field would be without prejudice
to existing on-going work within the Commission
or the implementation of existing Community
legislation.

The Green Paper does not take definitive
positions with respect to new regulatory
structures. Indeed, it recognises that
convergence may lead to less regulation in
telecommunications and media sectors, and
should not lead to more regulation in areas such
as IT. Rather it analyses the convergence
phenomenon as evident in the market; it
identifies issues relating to regulation arising
from these developments, and it poses
questions in relation _to_ these issues.

All interested parties are invited to contribute to
the debate by responding to these questions and
by making any submission they wish on the
subject. The period of such consultation is set
for five months from the date of publication of
this Green Paper. It is intended to produce a
report on the results of the consultation by June
1998.

Submissions may be sent via E-mail, fax or post
(4 copies please) to:

European Commission, DG XIII A4
Attn. Mr. E. Lalor

200 rue de la Loi, BU31 0/62
B-1049 BRUSSELS
Belgium

Fax (+32 2) 296 9009

and/or

European Commission, DG X C1
Attn. Mr. G. Paulger
200 rue de la Loi, L-102 5/25
B-1049 BRUSSELS
Belgium

Fax: (+32.2) 299 9201

and/or

E-mail: _convergencegp@cec.be_

Hard copies of all submissions will be made
available at the conclusion of the consultation,
unless a request for confidentiality is received.
A Web site has been opened for the posting of
both the Green Paper and submissions
received. The web address is:

_http://www.ispo. cec. belconvergencegp_

viii

This Green Paper represents a further step in
the realisation of an Information Society in
Europe. It examines a key set of policy issues
relating to the broad infrastructure of
telecommunications, media and information
technology sectors, for convenience referred to
as the 'relevant' sectors in much of this

document.

The Green Paper does not examine policy
issues related to the wider set of services which

will make the Information Society a reality services such as Electronic Commerce, which
encompasses a range of activities having the
potential to revolutionise sectors as diverse as
retailing, travel and financial services. The
policy issues relating to this wider set of services
include those where Community action is
already well advanced, for example, in
intellectual property rights, copyright and related
rights; media pluralism; privacy and data
protection; encryption and digital signatures.
These are part of the broader framework which
is emerging for new services and activities within
the Information Society. They are therefore
regarded as outside the scope of the Green
Paper and are given only passing reference
where relevant to the issues at hand.

Instead, the Green Paper concentrates on the
underlying infrastructure 'which will helps create
and deliver the services of the Information

Society to customers. It is made up of the
systems of components, networks and services
associated with the relevant sectors. In all three

sectors, those systems are undergoing
fundamental change, primarily through the
application of digital technology. This is likely to
have consequences for policy and regulation.

The Paper focuses on the on-line delivery of
services, dealing with off-line publishing, for
example, only insofar as _it_ represents a potential
market for the on-line business.

The Green Paper deals with broad future trends
and does not attempt to define markets for the
purposes of the application of Community
competition law. The positions discussed in this
Green Paper cannot prejudge the positions the
Commission may take in the assessment of
pending or future cases under the competition
rules.

From this perspective, Chapter I describes the
convergence phenomenon and the technological
developments which underpin it. It also
identifies current developments in the market 

and how suppliers, service providers and
consumers are reacting to them - as indicative of
the possible direction of future change. As in
any consideration of new markets, the activities
of suppliers and service providers give the first
indication of how things might develop. Their
reactions are tempered by those of consumers,
who must accept and embrace the new services
before the markets can become a reality.

111ji"~1rI~~r9~-n_~~~",~~!!,at6'9I•·i,~~~,~-~9~~-·:1·•,· - ···

The term convergence elJdes precise definition,
but it is most commonly expressed as:

 - the ability of different network platforms to
carry essentially similar kinds of services, or

 - the coming together of consumer devices
such . as the telephone, television and
pers'onal computer.

This latter expression of convergence is one
most often cited in the popular press - it is easily
understood by consumers and has the added
interest of reflecting a wider struggle between
computer, telecommunications and broadcasting
industries for the control of future markets.

Despite this popular image however, any
convergence of consumer devices is today much
less real than network convergence. Telecommunications operators are already offering
audiovisual programming over their networks
(albeit on an experimental basis) and have
become major players in the provision of Internet
access, as well as backbone infrastructure.
Broadcasters have provided data services over
their networks for some years and these
services will be enhanced over the next 12-18

months by the prospect of digital transmission of
both radio and television, and by the addition of
interactivity.

Cable operators are providing a range of
telecommunications services, including voice
telephony in some Member States and are
starting to deploy cable modems to offer high
speed Internet access, in addition to their
traditional business of television programming
distribution. Beyond· the provision of services to
the public, both audio and video technologies
are also starting to be deployed within corporate
'intranets' as an additional medium for

distributing real-time information. Such
applications are also starting to appear on web
sites targeted at prospective customers. [5 ]

5 See _Webcasting and convergence : Policy implications._
OECD, DSTl/ICCPfflSP(97)6  - to be published
December 1997

The network platform and the consumer/user
environment constitute two elements of the

supply or value chain extending from content
creation through content packaging, service
provision and final delivery to customers (see
Fig.1 ). The value chain is a useful concept for
analysing the behaviour of firms and markets in
the light of convergence.

Content &

service

packaging

Content supply Tailoring & - Platform & Delivery Access control
branding connectivity

_Function_

_Fig._ _1:_ _The emerging value chain_

_Source: Squires Sanders Dempsey LLP and Analysys Ltd._

Today, firms tend to be present in one or more
elements of the value chain. Some argue that a
shift towards convergence will lead many of
today's current players to consider extending
their activities beyond their core businesses, and
argue that this trend is already visible in some
recent mergers and acquisitions (see below).

The potential for change as a result of the
phenomenon of convergence can be seen at
three different levels (technology, industry,
services and markets) (see Fig 2) though there
can be no automatic assumption that
convergence at one level inevitably leads to the
same degree of convergence at other levels, nor
that convergence in technologies, industries,
services or markets will necessarily lead to a
need for a uniform regulatory environment.

Technology convergence, of which the examples
cited above are illustrative, is based on the
common application of digital technologies to
systems and networks associated with the
delivery of services. As section 1.2
demonstrates, technological convergence is
already happening, and continuing advances in
technology will further consolidate the process
along the different elements of the value chain.

Many commentators identify a trend towards
industry convergence, seen in alliances,
mergers and joint ventures which build upon the
technical and commercial know-how of the
partners in order to exploit existing and new
markets. Such alliances, mergers and joint
ventures will continue to be subject to scrutiny
under the Community competition rules. Many
such alliances are 'horizontal', that is, between
firms operating in the same part of the value
chain. Those aimed at addressing the potential

opportunities offered by market convergence
generally involve companies operating in
different parts of the value chain, resulting in
increased vertical integration. Some of these
alliances have met with early difficulties,
illustrating the uncertainty of the markets and the
risks involved.

**Policy and Regulation**

**Services and Markets**

l,ndust..Y.c:1lliit~~~s··e1n~ m~fg~rs···.

                                            - ~·.·' <·. .::                                            - ~t· .. "~ ' ~,,,~. :·;;                                            - ;~-' :,· ..

_Fig._ _2:_ _The_ _stages_ _of_ _convergence_

It is also difficult to be precise about the services
arising from convergence. Many new services
will result from technological progress within
given sectors, and may not result from crosssectoral activity at all. Others will be a direct
result of cross-fertilisation between sectors,
telecommunications and broadcasting for
example. Where there is a suggestion of the
latter, the term "convergent services" will be
used in this document. Where a more general
reference is appropriate, the Paper will simply
refer to the term "new services", without
signifying any precise legal definition.

**1.2Jhe** **enabli11g** **role of technology**

This Green Paper is not primarily concerned with
technology; rather it addresses the new
business and market phenomena which are
being enabled by technological developments,
and which are altering traditional providerconsumer relationships. An understanding of
the nature of these developments can lead to a
better appreciation of the potential for change.

**Digital technologies underpin convergence**

As already stated, the underlying trend is the
common adoption of digital technologies by the
relevant sectors. Digital technologies cover a
range of disciplines generally associated with
the computer and telecommunications industries

- digital micro-electronics, software and digital
transmission. Applied piecemeal within each of
the relevant sectors, these technologies have
already demonstrated their greater efficiency,
flexibility and cost-effectiveness, and have
shown how they can enhance creative potential
and promote innovation.

Computer technology now plays a key role in
content creation and production in both cinema

2

and broadcasting worlds. The ways in which
audio-visual material is produced, delivered and
consumed are evolving. Content is becoming
"scaleable" so that it can be used in different

environments and delivered on different network
infrastructures. The basic building block is the
MPEG family of standards for the digital
encoding of moving images. [6 ] Once encoded in
this format, images may be modified,
manipulated, or transmitted in the same way as
any other digital information. The systems and
networks handling such information are of
course indifferent to the nature of the source
material, be it image, sound or text. Digital
source encoding thus forms the basis of
technological convergence.

Digital transmission may be carried over
broadcast networks or over terrestrial wired or

wireless infrastructure. When applied to
broadcasting networks, the most significant
impact of digitalisation is the immediate
expansion of capacity, effectively removing a
scarcity which has limited growth of the sector
since its inception. But processing power and
software are also helping generalise consumer
devices like the set-top box. Implementing
functionality in software helps overcome the
product life-cycle problems associated with
hardware, reducing market inertia and facilitating
innovation. It also gives such devices a level of
intelligence which allows broadcasting networks
to emulate the switching capabilities normally
associated with telecommunications. For
example, satellite pay-television operators can
today address individual customers through
conditional access systems, often combined with
the terrestrial telecommunications network to
provide a 'hybrid' return path for interactive
services.

Network technologies for convergence.

As alternative telecommunications infrastructures become more widespread, high-speed
networks based on optical fibres will soon be
capable, in combination with modern server
technology, of operating cost-effectively in a
virtual broadcast mode. [7 ] The high data rates
and spectral efficiency achievable through digital
transmission open up the possibility of delivering
high-quality audio and video signals over a
variety of different network infrastructures.
Transmission technologies such as narrow-band

MPEG - _Motion Picture Experts Group._ The family of
standards extends from MPEG-1 to MPEG-4, of which
MPEG-2 (studio-quality television and multiple CDquality audio channels) is the most widely used.
That is, the same content delivered to many consumers,
but upon their individual request and not necessarily at
the same time.

ISDN [8], xDSL [9 ] and ATM [10 ] will ensure that both
existing and new infrastructures can play a role
in carrying the new services. The capabilities of
existing networks are also enhanced by the
compression techniques implicit in the MPEG
standards, allowing networks of limited
transmission capacity to carry services
previously considered possible only on
sophisticated and more costly wide-band
infrastructures.

ATM is of considerable interest as a multimedia
transport technology. It is a high-speed cellrelay technology, capable of transporting
telecommunications traffic of different

characteristics (voice, data, video) over the
same network, and has been designated by the
ITU as the basis for broadband ISDN, the
successor generation of its narrow-band
counterpart.

This continuing competition between different
technologies can change the fortunes of one
approach or another, making it difficult to be
prescriptive about tomorrow's network
architectures. This may be a relatively minor
problem given that today's applications and
services are becoming increasingly independent
of the underlying infrastructure which carries
them.

Internet technology is leading to platform
independence

The most relevant example of such platform
independence is that of the Internet Protocol
(IP). IP has developed into the _de_ _facto_ network
protocol for the Internet, able to route and
transport all the elements of a multimedia
service (text, image, motion video and sound).
IP is also used in Intranet products, providing an

ISDN   - _Integrated Services Digital Network._ The narrowband version was standardised over the last 30 years by
Telecommunications Operators wishil)g to digitise the
customer access network. Its long gestation period has
caused risks of technical obsolescence which have been
mitigated by other technologies (notably data
compression) and the emergence of suitable
applications (notably Internet access).
xDSL - _x-Digital Subscriber Loop_ whereas _x_ refers to
the technology of the moment. These are
technologies which exploit the existing
telecommunications network copper-pair cable for
high-speed data transmission. ADSL (A for
Asymmetric) runs typically at 1.5Mbps in the
downstream direction and HDSL (H for High-speed)
at 6Mbps. These are now being superseded by
higher-speed technologies.
10 ATM - _Asynchronous Transfer Mode,_ a high-speed
switching technology operating at a basic transport
level. This contrasts with higher-level application
protocols such as IP (Internet Protocol) which may
ride on top of transport protocols such as ATM.

3

infrastructure for multimedia applications within a
company or other closed user group.

The Internet can best be described as a network
of networks interconnected on an open basis
using IP, usually running over transmission links
leased from telecommunications operators
(TOs ). It has evolved very rapidly over the past
decade from a largely academic- and
government-sponsored network with a backbone
capacity of 56kbit/s in 1986, increased to 45
Mbit/s in 1993, and to 155Mbit/s in 1996. This
huge change in the capacity of the Internet's
infrastructure has been in response to the
remarkable growth in the number of people
using the Internet and the range of applications
and software tools developed for it.

The open, non-proprietary approach to
standards for the Internet has made it easy for
companies to take advantage of, and build on,
the advances made by others in the industry.
For example, many would argue that the rapid
development of the capabilities of the WorldWide Web (WWW) has been enhanced by the
open approach to browser development taken by
vendors such as _Netscape, Microsoft_ and _Sun._
The Internet will be further enhanced as a

vehicle for multimedia transport by the
development of several improved or new
protocols which Internet service providers expect
to implement within the next three years.

This brief review of the salient technological
developments is not meant to be exhaustive, but
to illustrate the role of technology as the motor of
change. Technology is developing constantly;
its application to innovative services and the
bringing of those services to market promise
even further dramatic change in the future.

1:;~,:'~y,rr~~nfrn~-r~~ra~v~1C?em~rlt!':?··,·

sign ificant changes are now being realised
through the application of new technology to the
individual sectors, and these are examined in
turn. Such changes are not in themselves
evidence of convergence, but as suggested
earlier, the commonality of technology applied
could provide a basis for that convergence to
develop.

Digital television and digital audio
broadcasting services are changing today's
audiovisual landscape

In the early 1990s it became apparent that digital
technology could be efficiently and cost
effectively used for the delivery of television and
audio signals. Of particular interest was the
possibility of delivering many more channels
over the same infrastructure (cable TV, satellite
transponders, terrestrial spectrum) by using

digital compression rather than existing
analogue transmission.

In the television area, building on the work of the
Digital Video Broadcasting (DVB) project, [11 ] and
against the background of a regulatory
framework provided by the Television without
Frontiers Directive, the Television Standards
Directive and other measures, [12 ] digital TV
services have recently been launched in Europe.
Other countries around the world are also

making use of DVB technology and European
standards. The first commercial services started
in France in April 1996. Other digital services
rapidly followed and at the time of writing, more
than 200 digital TV channels are targeted at
viewers in France, Germany, Spain, Italy, the
Benelux and the Nordic area. Of the order of

one million digital receivers are believed to be
currently in operation in Europe - figures which
could double by the end of 1998.

Although it is early days in the development of
this market a number of interesting phenomena which are either new to TV or significant
developments of past practice - are appearing as
digital compression is cost-effectively reducing
capacity constraints:

- _Programme_ _bouquets_ _and_ _thematic_
_channels_  - Broadcasting companies are
marketing their digital services in the form of
'bouquets' of programme channels. The
"bouquet" complements 'generalist' TV
channels with thematic channels
concentrating on news, sports, movies etc.
offering viewers greater choice and coverage
of areas of specific interest to them. Already
evident in the analogue era, thematic
channels are set to increase in number and

to achieve ever finer levels of segmentation
with digital technology. Such channels will
need to seek wider audiences for economic

viability, and pan-European operation could
be a way of securing them.

- _Near_ _Video-on-demand_ - The. availability of
substantial transmission capacity at
reasonable prices will soon make "near
video-on-demand" (NVOD) services possible.

11 The DVB is a body comprising more than 200
organisations from 30 countries in Europe and around
the world. It includes broadcasters (both public and
private), manufacturers (of consumer and professional
equipment), operators (of satellite, cable and terrestrial
networks) and regulators. It has defined a complete set
of specifications for digital TV broadcasting over
including: cable, satellite, terrestrial and microwave radio
distribution systems. These specifications have since
been converted into ETSI standards.

12 The 1989 _Television_ _without_ _Frontiers_ Directive
(89/552/EEC) was recently revised and updated as
Directive 97/36/EC. The _Television Standards_ Directive
(95/47/EC) was adopted in October 1995.

4

_Example:_ _With 60 satellite channels, ten 90-_
_minute films could be broadcast simultaneously,_
_each one starting at 15-minute intervals._

 - _**Pay-per-view**_  - Similarly, it is possible to
market specific events or movie-showings on
an individual subscription basis. Such payper-view services have been provided in the
UK on analogue channels (for boxing
championships) and Spain in digital format
(for football league matches). The greater
capacity of digital television allows the
simultaneous broadcast of several such

events (the most obvious case being
matches played in a football league), giving
viewers the choice of access to a particular
event on a 'pay-per-view' basis.

These phenomena, which constitute a significant
departure from classic schedule-based
broadcasting, have the potential to improve
consumer choice. In addition, and because the
"digital channel" is inherentJy more flexible than
an analogue channel, it can deliver other
services in the form of data, graphics, moving
pictures or combinations of these. Digital
television shares these characteristics with

digital audio broadcasting, which also offers
listeners near CD quality sound. "Multimedia
data broadcasting" already provides for the
downloading of computer programmes including
video games, data files and direct access to the
Internet from the TV set or network computer.

_Example: Hughes Olfretti Telecom launched the_

_DirecPC satellite Internet access service_ _in_ _1996._ _It_

_connects some 2000 sites across Europe_ _to_ _the_
_Internet at speeds up_ _to_ _20 times greater than_
_conventional modems._

The arrival of digital radio offers exciting
possibilities for the combination of radio and
images, or links to Internet sites marketing CDs
or tickets for band being broadcast [13] .
Broadcasters such as CNN and the BBC are

starting to make parts of their broadcast content
available on the Internet, extending their normal
geographical ·reach, whilst a new breed of
webcasters is emerging to broadcast particular
live events, such as sports coverage, concerts,
major events, etc ..

_Example: Coverage_ _of_ _the recentlrish elections was_
_available_ _to_ _Irish citizens all over the world via a_

_webcast site (l-vww.itv.com)_

Other innovations in the broadcasting field
include Widescreen TV using 16:9 format, the
technical possibility of higher definition pictures.

13 Radio with Images, Financial Times, 11 November 1997

**Telecommunications liberalisation is**

**widening choice and lowering prices**

In less than ten years, the European telecommunications sector has experienced a radical
transformation from one characterised by rigid
and inefficient monopoly to a sector facing full
and vigorous competition, with the total
liberalisation of services and infrastructure due

to take place in most Member States from
January 1998. This transformation owes its
beginnings in part to an earlier phase of
convergence - that between telecommunications
and computing - over a decade ago.
Technological convergence rapidly gave rise to
market convergence, and to "value-added"
services - innovative services which borrowed

concepts from both sectors, and which allowed
businesses to extend the power of computing
beyond the geographical confines of their
immediate locations.

The regulatory traditions of the telecommunications sector contrasted sharply with the freemarket environment in which the computing
industry had developed, and their coming
together meant that some rationalisation of these
different regulatory philosophies would be
needed if the new services were to flourish. The
1987 Green Paper [14 ] concluded that greater
harmonisation and gradual market opening in
telecommunications would provide the most
fertile environment for such growth. The first
measures were initiated in 1988 and culminated

in the introduction of full liberalisation of the
telecommunications sector by 1 January 1998 [15 ]

This step-by-step process of telecommunications liberalisation and global market opening is
already bringing substantial benefits to many
businesses and consumers, with lower prices,
improved customer service and innovative
service offerings. Even so, the overall level and
structure of prices continue to have a major
impact on the take-up of new services.

The mobile communications business is

particularly dynamic.

_Example:_ _Close_ _to_ _one_ _in_ _three people_ _in_
_Scandinavia have a mobile phone and there are more_
_than 3 7 million mobile telephony users_ _in_ _Europe._

Increasingly, such mobile systems are adding a
multimedia component. One aspect of market
convergence occurring within the

14 _Towards a dynamic European economy,_ Green Paper
on the development of a common market for
telecommunications services and equipment,
COM(87)290, Brussels, 30.06.1987
15 Commission Directive 96/19/EC and the body of
legislation adopted by the European Parliament and
Council. Certain additional transition periods are
provided for some Member States.

5

telecommunications sector is that between fixed

and mobile telephony, as in certain Member
States and amongst certain . groups of the
population (e.g. students, small businesses),
mobile phones are replacing fixed connections.

However, this practical example of how fixed
and mobile networks are converging is only part
of a wider trend towards the full integration of
wired and wireless technologies, which is the
key goal of the next generation of digital mobile
communications systems. This will offer users a
platform on which to receive a seamless set of
voice, data, multimedia and audio-visual
services wherever they are. This vision, which
has important implications for all the sectors
affected by convergence was first recognised in
the 1994 Mobile Green Paper [16 ] and has most
recently been returned to in the Commission's
two Communications . on Universal Mobile
Communications [17] 

The Internet is bringing new services to
business and the public at large

It is, however, in a third sector, the Internet, that
changes have been the most radical. The
Internet is both the symbolic and prime driver of
convergence. It is a vehicle for the delivery to
users of both existing services (electronic mail,
video, sound, voice telephony, for example) and
completely new services (e.g. World-wide Web).
It has rapidly evolved from a governmenU
academic network to a powerful communication
and trading platform. Characterised by an
unprecedented growth rate (doubling its number
of users every year), the Internet has started to
influence a number of economic sectors, with the
emergence of a fast-growing electronic
commerce economy.

The Internet is displacing traditional computer
networks, and showing the first signs of how it
may provide a platform which over time replaces
traditional methods of trading. For example,
traditional business-to-business trading on
closed corporate networks is giving way to
multidimensional commerce on global open
networks. The Internet is also providing an
alternative means of offering the core
telecommunications business activity (even if
differences in quality still distinguish the two
services) through the delivery of Internet
telephony, without in some cases either party
needing to have a computer. The Internet is
also a significant platform for broadcasting
services.

16 Green Paper on a common approach in the field of
mobile and personal communications in the European
Union, COM(94) 145 final, 27.4.94

17 COM(97) 217, 29.5.97 and COM(97) 513, 15.10.97

_Example:_ _Today,_ _there are 650 Webcast radio_

_stations and 2_ _70_ _"Real-Video" enabled sites on the_

_Internet,_ _1a_ _offering video_ _material_ _of_ _cun·ent_
_European and_ _US_ _broadcasters._

New Internet techniques, such as multicasting,
offers the possibility of delivering audio and
visual content to up to 50,000 users at any one
time instead of 50,000 individual messages,
narrowing the borderlines between previously
separate sectors. Many consider that Internet
will become a major conduit for video and sound
(especially music) distribution.

However, the Internet as a platform has
developed differently from traditional
broadcasting and telecommunications. It has
been essentially user-driven, with user-owned
equipment (the routers performing central rather
than peripheral network functions) and users

- themselves continuing to generate a substantial
part of the content. The decentralised nature of
Internet is seen by many as the single main
reason for its success, and as a lesson for the
converging environment. A characteristic of the
Internet which is indicative of convergence is
that it functions simultaneously as a medium for
publishing and communication. Unlike
traditional media, the Internet simultaneously
supports a variety of communication modes,
both transactional and broadcast in nature: oneto-one, one-to-many, many-to-many. An Internet
user may "speak" or "listen" interchangeably,
interweaving public communication (the content
of which is - at least in the case of broadcast
content - traditionally regulated) with private
communication (traditionally unregulated). This
constant shift from publishing to private
communication modes, each regulated through
very different principles, constitutes one of the
main challenges of Internet regulation.

Mergers and Alliances are reshaping existing
industries

The on-going process of convergence, the
opening up of the telecommunications sector to
full competition both in Europe and globally, and
the rapid growth of the Internet and on-line
services, is leading to the creation of new market
structures and new roles for market players. In
1996 more than 15% of the total value of worldwide mergers and acquisitions (US $1 trillion)
was generated by activity in what can broadly be
termed information and communication
industries. Such ventures represent a widerange of transactions, from horizontal alliances
which share risk and match complimentary skills,
to vertical integration as players in one market

18 www.timecast.com cited in OECD report op cit note 5.

6

segment seek to leverage technological
convergence, expand into other higher value
segments or develop scale economies. One
study being carried out for the European
Commission interpreted the motivations behind
some the main types of transactions (not all
successfully concluded), shown in Tables 1 and
2 below. [19 ] Although they do not necessarily
reflect the views of the Commission and cannot

be considered as an assessment under the
Community competition rules, they are
nonetheless useful illustrative pointers to the
evolving market situation.

_Table_ _1:_ _Horizontal Mergers and Alliances_

|Rationale|Examples|
|---|---|
|~~Increasing market~~<br>power/gaining<br>minimum efficient<br>scale<br>|~~Vebacom - Urbana~~<br>Systemtechnik, Cable and<br>Wireless Communications,<br>Demon - Cityscape<br>|
|~~High costofnew~~<br>{digital) technologies<br>|~~Canal Plus - Nethold~~<br>|
|~~Uncertain demand for~~<br>new services<br>|~~Multimediabetriebsgesellschaft~~<br>(Kirch, Bertelsmann, etc.)<br>|
|~~Internationalisation~~<br>|~~BT-MCI, Global One,UUNet-~~<br>Unipalm Pipex<br>|
|~~Opportunities arising~~<br>from regulatory reform|~~MFS/Worldcom, Telenet~~<br>Flanders, NYNEX/Bell Atlantic|

_Table_ _2:_ _Vertical Mergers and Alliances_

|Rationale|Examples|
|---|---|
|~~Uncertaintyofdemand~~<br>|~~Hughes Olivetti Telecom~~<br>(DirecPC), @Home<br>|
|~~Market positioning and~~<br>access to new skills<br>|~~Bertelsmann - AOL, BBC~~<br>WorldWide - ICL, STET - IBM<br>|
|~~Gaining controlof~~<br>channels to the<br>customer<br>|~~BT - BSkyB, Disney - ABC -~~<br>Capital Cities<br>|
|~~Moving into higher~~<br>margin areasofthe<br>value chain<br>|~~Microsoft Network - NBC~~<br>(MSNBC Internet new<br>channel)<br>|
|~~Stave~~~~_off_competition~~<br>from companiesin<br>related markets|~~US West - Time Warner,~~<br>Oracle - Sun - Netscape<br>(Network Computer)|

The same Study concludes that two trends can
be identified in such activity. One towards
consolidation of current activities and the other
towards diversification in response to new
opportunities opened up by liberalisation of EU
and World markets, and with a view to the
opportunities offered by convergence. Vertical
merger activity is seen as more significant
indicator of a change in industry structures in
response to the convergence phenomenon.

19 Study on _Adapting the EU Regulatory Framework_ _to_ _the_
_Developing Multimedia Environment,_ Squire, Sanders &
Dempsey LLP and Analysys Ltd., to be published in
December 1997.

Underlying that analysis is the reality that few, if
any of today's market players will have the skills
or resources to straddle the whole of the value
chain within a converged environment, so that
the emergence of major players in the sectors
affected by convergence will inevitably rely on
partnering to varying degrees. In such a context,
the Competition rules will continue to play a key
role in assessing new ventures as the emerge.

**Competition policy: the need to keep markets**
**competitive**

In the past, the Commission has applied the
Community competition rules to convergence
cases, [20 ] including some of the cases mentioned
in the table above. Global One and BT/MCI are
examples of the cases where the Commission,
following changes to the arrangements to protect
competition, has been able to approve under the
competition rules agreements considered likely
to promote technical progress. However, the
Commission has taken action against other
arrangements which unduly foreclosed markets
and which were therefore incompatible with
Community competition rules. Notable amongst
these were the MSG and Nordic Satellite
Distribution operations, where the combination of
market players in the converging markets and
the market positions which they were likely to
hold in the future would have led to a foreclosure
of the market on a lasting basis. This would
have, in turn, been likely to result into excessive
pricing as well as a loss of innovation and
product variety, to the detriment of the fast
development of these markets in Europe. As this
could not be remedied with changes to the
arrangements, therefore the agreements were
prohibited. 

In the future, the Commission will continue to
favour agreements which promote technical
progress, and which promote market entry. On
the other hand, the Commission will not allow
agreements or mergers which have the effect of
foreclosing markets or strengthening or creating
dominant positions, or giving the parties the
possibility of denying access to new entrants.
The Commission will also prevent market actors
who enjoy an existing dominant position from
abusing that dominant position, such as it did in
the Microsoft case, or in the case of
telecommunications operators on liberalised
markets.

2 ° For further details, refer to the European Commission's
Annual Report on Competition for 1994, 1995 and 1996.

7

**..** **,,** ma~~r~·radoar,, **.......**,JY~ **..** **Q** **..** **,.,!!,,,..,......._** **___** **.,**

This chapter has attempted to define the
phenomenon of convergence between
telecommunications, media and IT sectors. It
described the enabling technologies of
convergence and its initial manifestation in the
network platforms associated with the on-line
distribution and delivery of services. The
chapter concluded that while there is general
agreement on the notion of technological
convergence, there is less certainty regarding
the likelihood and/or timing of a full convergence
of the services and markets.

(A) Whilst convergence is occurring at the
technology level, to what extent and at what
speed is this happening at the industry, service
and market levels?

(B) Are the effects of convergence already
being felt in the business world and in our
everyday lives, and if so, in what way?

Following a discussion of the social and
economic context for convergence, Chapter II

~xamines market trends in order to assess the
potential impact of convergence on the relevant
sectors. The chapter concludes with a
discussion of how consumers may be
responding to these developments.

~.~a~~r~~!r,:Q.§r~u~n.iI~:;!£9n9Jn1~['.~?ht~#···.

**Social aspects**

The concept of the Information Society provides
the political background for convergence. The
Information Society permeates current thinking
on future economic development and is
predicted to have an equivalent impact on
society and employment as the industrial
revolution did a century before.

Within this context, the new services and
activities made possible through the range of
technological and market trends identified above
have the potential to impact every aspect of our
lives, from our homes to our work place; from the
way we do business to the way we learn; from
access to healthcare to the management and
delivery of public services and to the way
citizens participate in a democratic society.
Today people are already using telephonebased services in some Member States in areas
such as banking, insurance and ordering of
computers or theatre tickets. It is only a
relatively short step before the delivery of such
services becomes common place over the
television or via a PC. A key issue in that
context is ensuring that users are familiar with
and comfortable using new technologies and
services, whilst as will be seen later the
regulatory framework has a role to play in
ensuring user confidence in the new
environment.

A range of Community initiatives have attempted
to give a concrete form to the impact of the
social and societal implications of the
Information Society following the landmark White
Paper in 1993, [21 ] and the Bangemann Report
published the following year. [22 ] Similar highprofile initiatives were undertaken at the same
time in the USA and other parts of the world, and

21 _White_ _Paper_ _on_ _growth,_ _competitiveness,_ _and_
_employment_  - _The_ _challenges and ways forward into the_
_21st century,_ COM(93) 700, Brussels, 5 December 1993

22 _Europe_ _and_ _the_ _global_ _information_ _society,_
Recommendations of the Bangemann Group to the
European Council, 26 May 1994

8

an international dimension was added in 1995

when the G7 countries met in Brussels to devise

a global strategy for developing towards the
Information society.

Community initiatives for
the Information Society

Broad social aspects are being addressed by a
number of initiatives in which the Commission is
involved. These include the Information Society
Forum, [23 ] the High-Level Group of Experts on the
social aspects of the Information Society, [24 ] the
Commission White Paper on Teaching and
Learning, [25 ] the Green Paper on Living and
Working in the Information Society [26], and a
reconvened Bangemann Group reviewing
progress since its 1994 report. At an early
stage, the Commission recognised the
importance of convergence for the European
audiovisual programme industry, a prime vector
of social and cultural values. [27 ] Two recent
Commission documents, one a Green Paper and
the other a Communication, addressed issues of
illegal content and content which could be
damaging to minors. [26 ] The European
Parliament2 [9 ] and the Council [30 ] have been active
in this area, and a recently-adopted
Communication describes how the Information
Society must transcend a wide range of EU
policies. [31 ]

The many initiatives now under way in
furtherance of the Information Society are being
pulled together in a Rolling Action Plan [32 ] which
constitutes the secon'd phase of the
Commission's response to the Bangemann

23 First Annual report of the Information Society Forum to
the European Commission, _Networks for people and_
_their Communities_   - June 1996
24 _Building the European Information society for_ _us_ _all,_
Final report of the High Level Experts Group, April 1997.

25 _Leaming_ _in_ _the Information Society_ - _Action Plan for_ a
_European Education Initiative,_ (96) 471, 2October1996
26 _Green Paper on Living and Working_ _in_ _the Information_
_Society: People First,_ COM(96) 389, 22 July, 1996

_21_ Green Paper on _Strategy Options_ _to_ _Strengthen_ _the_
_European Programme Industries_ _in_ _the context_ _of_ _the_
_Audiovisual Policy_ _of_ _the European Union_ COM(94)96 of
6 April 1994.
28 See _Green Paper on the protection_ _of_ _minors and human_
_dignity in audiovisual and information services,_ COM
(96) 483, 16.10.97 and _Communication on the illegal_
_and Harmful content on the Internet,_ COM(96) 487,
16.10.97.
29 The Herman Report, 19 September 1996
3 ° Council Resolution on _New political priorities regarding_
_the information society,_ of 21 Nov. 96 OJ C386,
12.12.96, p.1
31 Commission Communication on _The_ _Implications_ _of_ _the_
_Information_ _Society for European_ _Union_ _Policies_
_Preparing the next steps,_ COM(96)395, 24.07 .1996
32 Commission Communication on _Europe at the Forefront_
_of_ _the Global Information Society: Rolling Action Plan,_
COM(96)607 final, 27.11.1996.

Report. The first phase covered the regulatory
framework, the network, services and content
aspects, and the social and cultural issues. [33 ]

The second phase, an outcome of the Corfu
summit, [34] - [35 ] is based on a updated set of
priorities: the business environment, education
and training, protection of the public interest, and
the international dimension.

Impact on economic and industrial
competitiveness

The convergence debate which this Green
Paper raises, is much more than an academic or
theoretical exercise. The ability of the European
Community to use convergence, whilst tailoring
it to the European version of an Information
Society, will be at the heart of growth,
competitiveness and job creation in the years to
come. The danger is that if Europe fails to take
advantage of the opportunities provided by
convergence, it could be left behind as other
major trading blocks reap the benefits of a more
positive approach.

The socio-economic and business implications
of the Information Society are currently being
studied in different fora at a Community level. [36 ]

The impact of the new services resulting from
convergence will be felt in the economy as a
whole as well as in the relevant sectors

themselves.

The most significant example is the emerging
field of electronic commerce. It includes both
indirect (electronic ordering of tangible goods),
and direct (on-line ordering and delivery of
services) forms. Electronic commerce makes it
possible to trade at low cost across regions and
national frontiers.

A recent Commission Communication pointed to
the potential opportunities provided by Electronic
Commerce for consumers and for businesses in
Europe, particularly for SMEs. [37 ] It estimated that
electronic commerce revenues, both direct and
indirect, are set to increase to 200 ·billion ECU
world-wide by the year _2000:_ It arso highlighted

33 _Europe's way_ _to_ _the_ _information society: An Action Plan_
COM (94) 347, 19 July 1994
34 Communication of the Commission to the Council, the
European Parliament, the Economic and Social
Committee and the Committee of the Regions. on _The_
_Information Society: From Corfu_ _to_ _Dublin_   - _The_ _new_
_emerging priorities,_ :OM(96)395, 24 July 1996.
35 Commission Communication _"The implications_ _of_ _the_

                                         _information society for European Union policies_
_Preparing_ _the_ _next steps"._ COM (96) 395, 24 July 1986
36 See for example, _Action Plan for employment_ _in_ _Europe:_
_A confidence pact,_ CSE/1262/96, OJ C56, 24 February
1997 and _Cohesion and the Information Society,_
COM(97)7,22 January 1997.
37 Commission Communication, _A European Initiative_ _in_
_Electronic Commerce, COM(97)_ _157,_ April 1997

9

the creation of a favourable regulatory
framework on both EU and global levels as a
prerequisite for further development.

With regard to the impact of convergence on its
component sectors, one study indicated that
revenues in the relevant sectors could suffer by
some 40% by the year 2005 if the market does
not develop in a direction which takes full
advantage of convergence. [38 ] To give some idea
of scale, Fig. 3 shows that the relevant sectors
represented some ECU 175P billion in 1996, of
which ECU 508 billion was attributed to EU
markets. [39 ]

Fig.3: 1996 distribution of global revenues (ECU
1750 billion) for the relevant sectors

_(Source !DA_ _TE)_

Expansion of the market for services and the
means of their distribution seems likely to have a
knock-on effect in content production, though
often as a result of regulatory obligations placed
on particular broadcasters. There is evidence,
for example, that the success of Canal+ pay
television in France has had a positive impact on
the French cinema industry. Likewise, independent content producers in the UK were
given a boost when Channel 4 arrived on the

scene.

Future developments may impact on the
fulfilment of the public service mission. First, as
the pay-TV market matures, operators may need
to increase their investment in local content to

maintain quality and product differentiation. For
example, British satellite pay-TV operator,
BSkyB, is now a major investor in the UK film

38 See KPMG Report, _Public Policy Issues arising from_
_Telecommunications_ _and_ _Audiovisual Convergence,_
September 1996

39 Source: _Market developments in telecommunications_
_and_ _integrated communications_ _services__ _to_ _the year_
_2010,_ Study by IDATE for the Commission, 12/97

industry, and Canal+ is acqumng rights in
French cinema libraries. Secondly, competition
in conveyance (terrestrial, cable, satellite, etc.) is
likely, particularly in a digital environment, to
shift the bottleneck from delivery to content, with
a resulting hike in the prices for content rights.

_Employment effects_

The signals this sends to the marketplace should
lead to greater investment and hence
employment in the content business to satisfy
the increasing demand. Europe is well-placed to
meet this challenge by harnessing its creative
capacities to the diversity of cultural
environments under its roof. However, EU
production is not increasing rapidly and the EU
therefore needs to strengthen the
competitiveness of its companies so that the
public can get the most out of the opportunities
offered by the new media, and so that market
growth can be transformed into jobs to bring the
number of people employed in the industry in
Europe (1.8 million) closer to the level in the
United States (2.6 million).

Quite apart from the multiplier effects generated
by convergence in its role as an enabler of the
Information Society, there is likely to be a direct
and positive impact on employment in the
relevant sectors. Expansion of the market and
the attendant demand for new content and
services will generate a need for people with the
requisite creative talents. This will be felt both in
large companies seeking to reorient themselves
towards the new markets, and in SMEs seeking
to exploit niche markets. SMEs will combine
their use of standardised digital platforms such
as the Internet with software skills to develop
applications and services aimed at both
professional users and residential consumers.
The task will be to take full advantage of
technological convergence by integrating the
diverse components of telecommunications,
media and IT sectors to produce innovative
services.

Staff retraining will be an important requirement,
Gearing up for the new markets will need people
with the right mix of skills, for which specialised
training will be required. The Commission has
launched a number of initiatives in the field of
education and training, notably the action plan,
Teaching and Learning in the Information
Society, [40 ] as well as certain activities in the
context of the Leonardo (training) and Socrates
(education) programmes.

40 Op.cit Note 25

10

_Research_ _and_ _Development_

European support for co-operative research and
development activity, through the ACTS
(Advanced Communications Technologies and
Services), Esprit and Telematics programmes,
has played an important part in many of the
technical developments which has made the
convergence phenomenon possible. It has
contributed to the strength of European IT,
telecommunications and software industries.
Much of this work has supported the
development of technical standards
subsequently adopted by the industry and
formalised by European standardisation bodies,
and has contributed to the development of
technical platforms and tools supporting
electronic commerce.

Research and Technological Development
(RTD) Programme activities during the Fourth
Framework Programme have equally
encouraged greater participation by SMEs, who
can benefit, for example, from systems and
services which stimulate tele-working. A specific
example of an integrated approach to systems
and services of benefit to SM Es is the
Integrated Applications for Digital Sites. [41 ] Here,
on-line and off-line multimedia applications
supply integrated services from central/local
government - in transport management, telemedicine, education and training - to local
citizens, businesses and other organisations in a
cost-effective, user-friendly manner.

Following the adoption of the proposal for the
Fifth Framework Programme in April 1997, the
Commission has reviewed research activities in

IT, telecommunications and telematics with a
view to grouping them into a single integrated
programme. In the context of convergence, this
includes R&D activity in the area of multimedia
and audiovisual content. [42 ]

11.2' Marlcef'fr~ffd_s _

This section looks at market trends without

however providing an assessment under the
Community competition rules. The activities and
investment strategies of market players in
response to new developments are now
becoming evident, and give a good indication of

41 Subject of a Call for proposals in 1997 under the
Telematics Applications Programme. Digital sites are
physical sites in geographical areas such rural areas,
small towns, cities or regions, in which local needs of
citizens and businesses can be met through IT and
telecommunications multimedia applications.

42 See COM(97)553final of 5.11.97, _Fifth Framework_
_Programme. Research_ _and_ _Technological Development_
_(1998-2002), Commission Working Paper on the Specific_
_Programmes: Starting points for discussion._

how those players perceive future trends. One
indicator of convergence is the willingness of
market players to exploit the possibilities
provided by new platforms, in particularly, the
Internet to expand their activities beyond the
confines of their traditional core markets in both

a geographical and product sense. Webcasting
highlighted above is one such example. The
entry of telecoms operators into the area of
Internet service provision and Internet voice
telephony provision is arguably another. Such
services are new only in the sense that they
represent an excursion into new areas for the
provider in question. But some are new to all
comers.

New services

The flexibility of digital information is creating the
possibility for more and enriched conventional
services, (such as digital television and radio
and better quality mobile communications), as
well as a whole range of new services and
applications. These new services are as varied
as electronic newspapers. on-line supermarkets
and catalogues, home-banking, and the use of
multimedia web sites for both internal
communications, and as a key tool for business.

_Examples:_

- _Broadcasters who are branching into new areas,_
_such_ _as_ _data broadcast, Internet webcasting and_
_telecommunications transport and services;_

- _Telecommunications operators who are providing_
_audiovisual services, such as video-on-demand_

_and cable television._

- _Internet service providers· who are starting_ _to_
_distribute audiovisual material, and Internet_

_access providers supplying voice telephony_
_capability._

Despite current limitations a number of
applications are closing the gap between _smart_
_television_ and _video Internet._ The area where

these two areas converge curref!tlY constitutes
the most fertile ground for innovation and
entrepreneurial activity - as well as for creation
of entirely new types of content. Innovative
forms of graphic-rich "Internet channels" are
building on the creativity of previously separate
_metiers_ of video production, computer imaging
and information management. Similarly, highend networked video-games are building
devoted constituencies of players across
national borders. In a seamless and scaleable
digital environment, innovative hybrid multimedia
applications are appearing - such as digital
television 'infomercials' with Internet response
mechanisms (for immediate ordering), CD-ROM
catalogues with Internet connections (for content

11

or price updates) and commercial Web sites with
local CD-ROM extensions (for memory-intensive
multimedia demonstrations).

At the delivery end of the value chain, players
are moving into what are for them new areas of
activity. New features are being added to
services on all networks. In addition, the
services themselves are changing by combining
the features of hitherto separate services. Thus
television programmes are 'data-enhanced' by
the parallel availability of text and graphics. One
pilot project, for example, supplements
broadcasts of horse-races with supporting text
and facilities for on-line betting. The same
possibilities are offered by digital radio.

New players

As convergence enables incumbent players in
the telecommunications broadcasting sectors to
expand their roles, it also marks the entry of
powerful new players from publishing and IT

industries. For information providers, such as
publishers, database operators and financial
information services, the Internet constitutes a
crucial extension of their traditional know-how,
and an ideal means of recycling and
"repurposing" rich stores of information.

Similarly, IT companies are exercising significant
influence on shaping the new services market in
Europe - as they move towards generalised online distribution of software and multimedia

content, make substantial investments into cable
and television business, and act as integrators of
advanced television trials in Europe.
Underpinned by the exponential growth of
computing power, kept responsive to change by
shortened product life-cycles, used to operating
in a fiercely competitive environment, and
historically unhampered by cumbersome
regulation, the contribution and potential of thP.
IT industry to first drive and then benefit from
convergence should not be underestimated.

Fig.4: Locations of the Major Players in the Value Chain and Relationships between them

TO Broadcaster

Content creation

Packaging

Service Provision # 
Infrastructure

provision

Terminal vending

                - Core strength

IE~#I Partial competence

Electronic Internet service Content Software
publisher provider creator developer

Existing relationship or contractual link

_____. Potential contractual link to another player

_(Source: Squires, Sanders Dempsey LLP and Analysys Ltd.)_

New market structures

The significant merger, acquisition and alliance
(M&A) activity described in Chapter I are
motivated by a range of commercial and
strategic factors. The trend towards
convergence would be one of these, albeit an
important one. Some argue that new market
structures reflect a substantial shift in the value
chain, with value migrating from simple delivery
to the production and packaging of content or
the offer of on-line of services and transactions.
Liberalisation and competition, coupled with
digitisation and significant increases in network

capacity of both broadcasting and
telecommunications networks, is rendering the
transmission and delivery of services a
commodity item, converting it into a low-margin
high-volume business. Firms currently operating
in the lower parts of the value chain are
therefore seeking to increase volume on their
core activity, through horizontal alliances or
organic growth into new geographical markets.

At the same time, they are moving up the value
chain to higher margin activities through vertical
concentration. Telef6nica's purchase of Antena3
TV in Spain, the STET group's creation of·

12

Stream in Italy and Microsoft's acquisition of
cable television operator Comcast in the USA
are all examples of companies moving across
sectors as much for strategic as for commercial,
profit-motivated reasons. Fig.4 maps out these
strategies by type of market player and by
element of the value chain brought into play. It
also indicates the types of commercial
relationship which are emerging between
different actors. It should be noted, however,
that the representation is schematic and, that
neat distinctions between content creation,
packaging and service provision are sometimes
difficult to establish.

The situation is reinforced by the emergence of
new industries filling in the gaps between
adjacent sectors; some of the start-up
companies pioneering on-line computer
networking services a decade ago have grown
into multi-billion dollar groups today.
CompuServe and American On-line are two
cases in point. The recent linking of those two
businesses together with Worldcom is a further
example of the fluidity of current market

structures .

11~$T~.~'.,~eh~ilrr1~f per,sP,~~tiv~

The nature and potential growth of market
demand for the new services is the greatest
uncertainty facing market players. The signals
from the marketplace are conflicting. Supplyside indicators, in terms of M&A activity and
investment in new service development, give a
positive impression of market potential. On the
other hand, although growth rates in Internet
services are impressive, only around 8% of
European citizens are using the Internet at work,
and around 4% at home. This represents a
small proportion of the total consumption of
audiovisual material, in which TV set penetration
exceeds that of the telephone. Moreover, many
view the passive consumption of family
television viewing to be the mainstay of
audiovisual consumption for the foreseeable
future. [43 ]

However, there are some indications of potential
change in the patterns of consumption of
services and in ttie home environment. Some of
these are taken from market developments in
North America, where the use of PCs in homes
is currently much greater than in Europe.
Parallels drawn from the US market will only be
valid therefore to the extent that a similar level of
PC use can be achieved in Europe.

43 See _Economic Implications_ _of_ _New Communication_
_Technologies on the audio visual markets._ Study carried
out for the European Commission by Norcontel (Ireland)
Ltd., March 1997.

The changing patterns of consumption

Consumers are likely to use new products and
services offered through convergence only
insofar as those services are useful to them.

The take-off of new services cannot therefore be
simply supply-driven, but must take account of
demand and, in particular the consumer
viewpoint. This is reflected in consumption
trends which are beginning to show the first
signs of a convergence in the home:

 - in 1998, for the first time more personal
computers will be sold in the world than
television sets; this must of course be set
against the very high penetration of TVs in
the home, and the fact that PCs are sold to
both businesses and homes;

in 1995, Americans spent less than half of all
screen-viewing time in front of computers;
recent US audience measurements indicate

that Web users already consume 59% less
television than average viewers and it is
estimated that the TV set's share of screen

time will be half that of the personal computer
in 2005; on the other hand, audience figures
for 1995/96 show that the average daily
viewing time in Europe increased by 4
minutes, compared to a decrease of 2
minutes in the US;

- research into activities displaced by
increased personal computer usage shows
that watching television loses out rather than
reading books and magazines, or playing
console video games. According to Price
Waterhouse, young adults in the US between
18 and 35 who used to spend 4 hours a day
watching TV now spend one of those hours
'surfing the net'.

In terms of available leisure time and
expenditure, the youth segments are already
opting for interactivity. Video games alone
represent nearly 20% of under sixteen year olds'
total media consumption in som·e markets,
according to Arthur Andersen. [44 ]

Changing home environment for
consumption

A key factor in the take up of new services will
be the penetration of PCs in the home, and
particularly multimedia and Internet capable
PCs. Here whilst PC penetration levels of up to
30% are common in most Member States,
penetration of multimedia PCs is considerably
lower and Internet usage in the home as
mentioned above is growing steadily but from a
low base. On the other hand, the current

44 "He who hesitates has no audience", Jolyon Barker,
_Broadcast._ 10 May 1996

13

average life of a PC is three years suggesting
the current stock of PCs will become multimedia
capable fairly quickly, wh.ilst increasing
familiarity with these technologies at work and in
schools will help to boost home take up further.

One major change in the home has been the
transition from collective, family viewing of two or
three generalist TV channels to individual family
members viewing alone, selecting from the much
broader range of channels on offer in today's
multi-channel environment. The multi-channel
broadcast environment itself competes with
packaged media, played on video recorders and
video-game consoles. All of this will increasingly
compete with the computer, particularly with its
use on line.

Aware of the changing patterns of consumption,
the television and computing industries are vying
for viewers' attention. Broa~kasters and TV

manufacturers are enhancing the interactive
capabilities -of their services and equipment.
Today's digital television set-to'p boxes already
combine television and telecommunication
functionality. TV sets can already double as
monitors when connected to low cost Internet

appliances. Many in the consumer electronics
industry predict that TV sets with built-in PC
capability, including Internet access, will become
an important feature of the consumer market in
the near term.

From the other end of the spectrum, the
computer industry is already offering multimedia
PCs which allow viewing of television channels.
Hybrid WebTV set-top boxes combine Internet
and digital TV reception with facilities allowing
storage and manipulation of video content,
enabling applications as diverse as downloading
of films and sending of video-clips as E-mail.

Whether the PC/TV or the TV/PC will win this
battle is, at the moment, quite unclear. What is
certain however is that the consumer's "home
platform" is set for significant evolution over the
next few years. Yet at the same time and in
parallel, consumer demands and needs for
better access to information will also allow for
convergence of those telecommunications,
media and information technology products and
services that cater to public interest domains
such as education, health, environment and
transport.

:~.~~~1:~9fi:Iffi~-™:.!~.~~*q~!!f'¥?~ij~!~·J~E•···:~0'.lJ~~~:::;~~~gT~:::·~;·· >,

This chapter discussed the overall political and
economic context for convergence, placing it
against the background of the Information
Society, and describing the range of Communitylevel activity in this area.

It then went on to discuss market trends from

both supply and demand perspectives,
punctuating optimistic views on the future
realisation of convergence with a realistic view
of today's patterns of consumption, and the
relative starting points of different platforms such
as the Internet and free-to-air broadcasting.

(A) Will convergence have a significant
impact on job creation, as well as on education
and training in the European Union? How is
convergence likely to impact the way in which
we work? Will its effects be spread evenly
throughout the European Community?

(8) What effect are current developments
likely to have on telecommunications, media and
IT sectors, in terms of the underlying economics
of those sectors, the services offered and the
likely service providers?

(C) What evidence is there of changes in
Europe in the way services, information,
entertainment and culture is being accessed in
the home and in the office? What are the
implications of current levels of PC penetration,
Internet use and TV penetration for the take up
of new services? What action (if any) is needed
to overcome low levels of multimedia computer
penetration and Internet use?

(D) In the light of the positions put forward in
the Commission Working Paper on the Fifth
Framework Programme, [45 ] what kinds of
Community RTD projects should be launched in
the context of convergence?

45 Op. Cit. Note 42

14

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 111 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 tt.ie 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 v... here 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

11.1, 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.

46 According to a 1997 OECD report, 20 hours of Internet
use cost $38 in Finland, $64 in the UK, and $74 in
Germany, compared to $29 in the US.

15

_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 ag'reements
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

47 COM(95) 383 19.7 .95 and COM(96) 568, 20.11.96,
respectively.

_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 11 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 regu~atory 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

48 One example is Video-on-Demand which according to
the Squire Sanders Dempsey Study is considered either
treated as a value-added telecommunications service or
has not yet been formally categorised in all Member
States, except France and the UK, where it falls under
the broadcasting framework and Germany, where it falls
within the new category of "teleservices".

49 OECD op cit note 5

16

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 lV 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

so See COM(96)443

17

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.

~~at 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?

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.

Section IV .2 identifies possible approaches
towards key regulatory. Section IV.3 looks at
meeting public interest objectives and Section
IV.4 examines options for a possible future
regulatory model. The chapter concludes with
an overview of relevant international issues.

- ·1y:'~, - ·''•~.~.a•l.i~JS9~!:.it9::!~i~jf~9;re9y~~t~IY
1
#### •.· ;;;··· · ~P.pfq~~tt:i~J1; ::~~:~::i1:.:;r:.··:.·· ;;.}''J'.{>;x;2·•····••"··.····••.·······~,

Areas where the convergence phenomenon
could raise difficulties for existing regulatory
approaches are identified below. These
challenges apply both to the substance of
regulation and to its practical implementation.
Possible solutions to these issues are discussed

in Sections IV.3 to IV.5.

The role of regulation

Regulation is r'tot an end in itself. Instead, it is
simply a tool, alongside the use of market
forces, for achieving wider social, economic and
general policy objectives, such as those
highlighted in Chapter II. This has already been
recognised in the Commission's Communication
on electronic commerce, which proposed the
principle of _"no_ _regulation_ _for regulation's_
sake". [51 ] This principle applies equally to all
areas of convergence. The fundamental
objectives underpinning regulation in the
Member States are not undermined by
convergence. These objectives are varied and
tailored to the specific needs of different sectors,
but include national goals such as promoting
efficiency, economic welfare, and the public and
consumer interest. At a Community level,
similar aims are reflected in the provisions and
objectives of the EC Treaty.

Nevertheless, the nature and characteristics of
convergence which are examined below, as well
as the perceived need of industry actors for
regulatory intervention to be limited and closely
targeted, should lead public authorities at both a
national and a European level to re-examine the
role and weight of regulation in a converging

51 Op,cit. The three other principles set out in that
Communication are also important in the context of
convergence. These were that any regulation must be
based on Single Market freedoms; must take account of
business realities; and, must meet general interest
objectives effectively and efficiently.

18

marketplace. Three key issues can be
highlighted:

 - _The_ _role_ _of_ _market_ _forces._ Some
commentators place particular stress on the
need to place greater reliance on the ability of
market forces to ensure regulatory objectives.
They would argue that this philosophy is
reflected in the evolving approach in most
Member States to universal service in

telecommunications, or in the IT and
broadcasting worlds by the industry-led
development of interoperable standards ar:ld
software. Others are doubtful about the
ability of market forces to provide adequate
_ex ante_ guarantees for consumers, and
recognise an important role for regulation in
safeguarding public interest objectives.

 - _The_ _balance_ _between_ _sector-specific_
_regulation and competition rules._ A further
key issue is the balance between competition
rules and sector-specific regulation, with
many arguing for a preference to be given to
the application of competition rules to
individual cases within a converged
environment, rather than the further
development of extensive regulation.

 - _Finding workable solutions._ Where regulation
is in place it must apply in a workable and
timely manner. The global nature of the
Internet or the regional nature of satellitedelivered services point to the potential
difficulties of enforcing the rules of one
Member State in other countries; whilst the
rapid pace of change in terms of services and
products, measured in months and weeks,
presents a real challenge for anyone seeking
a legislative solution to any particular
problem. Such solutions at a Community
level tend to be measured in months and

years.

The challenge to the consistency of
regulation

A key feature of a converged environment is the
possibility that any network can be used to
deliver a much wider range of services than is
currently the case. It does not automatically
follow that the delivery of different services over
a single network or via a single service platform
makes those services the same, nor that the
public interest objectives underpinning regulation
automatically transpose from one service to
another.

For example, whilst a film, a song, a railway
timetable and a phone conversation may all be
carried in a digital form, this does not result in
the user treating these different services/
activities as interchangeable. In the same way,

regulatory approaches to each of these services,
whilst potentially based on similar general
principles, are likely to continue to be tailored to
the specific characteristics of these different
services.

Nevertheless, as stated in chapter Ill, regulating
essentially similar services differently,
particularly, on the basis of the technology used
to deliver the service, could represent
discriminatory treatment which might hold back
competition, investment and the provision of
services. One example of the treatment of
opinion polls under French election law was
already cited. Another example could be the
limited scope of the current Interconnection
regime in telecommunications which would offer
interconnection rights to an organisation
operating a public telecommunications network,
but not to someone operating a broadcasting
network. Interconnection between the two may
be of particular importance in the context of
services which use broadcast media to
download information and services, but rely on
the telecoms network to provide a return
channel.

In assessing such differences in regulatory
treatment both across sectors and between
Member States, any analysis at a Community
level would need to consider whether continuing
differences were consistent with public interest
objectives identified in the Treaty and by the
Court of Justice and whether the rules in place
were proportionate to the objective sought.
Where the answer to either question is no, the
rules in question could be attacked before the
Court of Justice.

Where the barriers resulted from measures
which are fully consistent with the Treaty and
where principles of mutual recognition could not
be applied, Community measures (such as
harmonising legislation) might be then justified.

The challenge of globalisation

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.

In the new global environment, the way in which
networks and services are regulated in different
regions has the potential to impact substantially
on investment in those regions. Excessive or
inadequate regulation in one region could result
in a migration of economic activity elsewhere, .
with adverse consequences on the development
of the Information Society in the former region.

19

The challenge of abundance to regulation
based on scarcity

Convergence may challenge current regulatory
approaches, particularly, with regard to the
licensing of networks and allocation of
resources, where such approaches reflect a
perceived scarcity of both radio-frequency and of

content.

Current market technological trends, such as
substantial increases in network capacity; the
possibility of content and services to be
delivered over a number of platforms; the
increase in competing routes to customers and
improvements in digital compression suggest
that in a fully digital environment, scarcity may
over time become a less significant issue, calling
for current regulatory approaches to be
reassessed.

Nevertheless, the removal of scarcity in the
transmission network will not necessarily be
accompanied by a corresponding increase in
content or services (in particular, "premium"
content or services needed to fill those

channels.) In any event, pending the complete
migration of the broadcasting sector from
analogue to digital services, capacity bottlenecks
are likely to continue for the foreseeable future.

The challenge to distinctions between public
and private activities

Convergence will not prevent the implementation
of regulation based on distinctions between what
is private or public, but it may shift the
boundaries of where lines between the two can

be drawn. This could have consequences for
the level of regulation applied to a particular
service. To the extent that rules have been

formulated on the basis that particular networks,
services or activities are public rather than
private, [52 ] a reassessment may be required to
determine whether current boundaries between

what is public and what is private remain valid in
the light of technological developments. For
example, new means of delivering services,
interactivity, and the possibility of per-transaction
payments may make it harder to draw those
lines in the future.

Another practical example, is reflected in the two
recent WIPO treaties which relate, inter alia, to

52 One example in telecommunications, is that whilst public
telecommunications networks may be subject to
conditions relating to both public interest objectives and
to technical requirements, private telecommunications
networks may only be subject to technical requirements.
In broadcasting, the definitions of broadcasting in a
number of Member States specifically include the
element of delivery to the public to categorise services
falling within the broadcasting regime.

copyright. These have clarified that a "public
communication" for the purposes of copyright
law includes the situation where a work is made

available to the public (for example, via a web
site) in an interactive way.

The challenge to regulatory structures

The fragmentation, complexity and diversity of
regulatory structures involved in the converging
sectors was one of the issues highlighted in
Section 111.2 above. To the extent that a risk of

overlapping regulation exists or the need to deal
with multiple regulators within or between
Member States, market players may call for a
rationalisation of current structures in order to

avoid unnecessary administration creating
barriers. For example, where services can be
offered over a single network, organisations may
benefit from dealing with a single regulatory
authority in a Member State on questions linked
to that network, irrespective of the services
offered over the network.

the' reliail~' CPf'\Y~r9~~~~".;:"pro(;~§.S1trna~t'ir:riPact,,·on,,,,,,,,, - .,4, ~t~n~, . ~~~~,~~~~~g! c;the

prin9ipl·~'~YDA~fgipmngi9u~ent'·~eg4l~tiof1 ...., . . .,. : - .:·::;4f:;.,~·:::.:.· .:. ;:~~ '.:·:. ~r·1:'"·· :;~."~<: :-:':'.·:,::.>·.:·: .:._. .. ~5-'<':!:'; :.:·.,:·:·.· - ; - ·,·J: : · ._ . _._ _:·_ ~~~:: - . .-··. .:,. :· - .· . in·.the,. .
telecommuo'icatiohs;r·~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?

IV.2 Tackling th~ barriers ~ The regulatory
issues

This section examines seven broad areas where

potential regulatory barriers have been
identified:

- Definitions

- Market entry and Licensing

- Access to networks, to conditional access
systems and to content

- Access to frequency spectrum

- Standards

20

 - Pricing

 - Individual consumer interests

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.

IV.2.1 A need for new definitions?

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:

- are sustainable in the light of technological

developments;

- result in the same service falling under a
more than one regulatory regime, and where
it does, whether that is justified.

- lead to discrimination by allowing similar

networks or services to be regulated
differently.

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.

IV.2.2 Market entry and Licensing

Among the potential barriers identified in
Chapter 111 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:

(i) the grant of monopoly or special rights over
networks or services to one or a small
number of companies, may prevent others
from providing the same service;

(ii) limiting the services that can be offered over
a given network (for example, preventing a
telecoms operator from using its network to
offer entertainment services)

(iii)requiring certain services (such as free-to-air
broadcast channels) to be carried, which
reduces the scope for other services to be
provided,

21

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
prov1s1on 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 Ill 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 selfregulation, 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 !hat should be
encouraged. 

_Common_ _principles_ _for_ _the_ _award_ _of_ _licenses_
As indicated in Chapter Ill, 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:

- the awarding authorities should be
independent from actors in the sector,

22

 - procedures should be transparent and nondiscriminatory, set against defined timetables,
leading to decisions which should be open to
appeal and

 - Any fees associated with a licence be in
proportion to the level of effort involved in
aaministering the licensing process, and not
constitute a discriminatory levy on expected
profits.

 - Notwithstanding the previous principle, fees
may, in the case of licensing of radiofrequency be set at a level which encourages
the efficient use of the resources allocated.

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, crosssubsidisation 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
qisputes 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 Ill, the fact that an open
framework is applied to one set of infrastructure
but not to others may create barri~rs 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

53 Directive 95/47/EC on the use of standards for the
transmission of television signals, O.J. No. L 281/51,
23.11.95.

23

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 enc 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 orgar:iisations
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

54 For further discussion, see the OECD Report Op cit at
note 5. A number of the issues linked to the provision of
telephony over the Internet are also considered in the
Commission's forthcoming Communication on the status
of Internet telephony under Directive 90/388/EC

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 1 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 _a_ _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 gatekeeping 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.ss Exclusive

55 Analogous problems have already been addressed
under European competition rules, for example, in
relation to computer reservation systems for air travel
which are governed by Council Regulations 2299/89,

24

arrangements tying particular EPGs to particular
service bundles may become a problem
requiring regulatory intervention to ensure thirdparty access on fair, transparent and nondiscriminatory 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 APls 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 APls used in settop boxes in Europe, risking fragmentation of the
market and problems of interoperation.
Furthermore the combined use of proprietary
APls 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 scaledependent, it generally exploits such economies
of scale by careful management of distribution
windows (e.g. cinema, video rental, video sellthrough, 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

3089/93, reviewed in COM(97)246 final, Brussels, 9 July

1997.

current basis for window management, and
could lead to a greater dependence on nonexclusive 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 digitisat1on 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 Ill 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 al.located to the areas

25

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 Radiocommunications 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 11 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.

IV.2.5 Standards

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 objectite 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 consensusbuilding 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, s_tandardisation
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 consensusbuilding while it also allows European players to
increase their impact on the international
standardisation scene.

IV.2.6 Pricing

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

56 Op.cit. Note 60

26

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 _tb_
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 multipoint 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 online 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.

(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?

IV.2. 7 Individual consumer interests

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,

27

responsibility for c9ntent 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.

:'1Yi~IM!~ltii9le@I~lli!!Ii~J~~!¥1!~,!l~!,~ff~ -_.J_:: __ _

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
Ill, 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.

The need for public interest objectives to be
clearly defined

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 m1ss1on. In the telecommunications
case, the cost of ~hose 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 ill 1he 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
cre3te 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 a/ia,_ as
to whether that mechanism would need to be
open to any organisation willing to be designated
as fulfilling public interest obligations.

Content-related objectives

Convergence is already leading to a
reassessment of appro~ches 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

28

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 b~
considered inappropriate, _if_ applied to a pay-TV
programme or an Internet service, because of
the specific characteristics of the service
concerned.

The role of public service broadcasting

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 24hour 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.

57 Protocol no 32 on the system of public broadcasting in
the Member States, annexed to the EC Treaty.

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 atso 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 ..

Other general interest objectives

_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
receflt 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 invoh(ing 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

58 Directive 95/46/EC of the European Parliament and
Council of 24 October 1995 on the protection of
individuals with regard to . the processing of personal
data and the free movement of such data, OJ L281,
23.11.95.
59 Proposed directive on _the processing_ _of_ _personal data_
_and the protection_ _of_ _privacy_ _in_ _the telecommunications_
_sector, ....,Common_ Position adopted by the Council on
12.9.96, O.J. 96/C 315/06, 24.10.96.

60 Commission Communication _Towards_ _A_ _European_
_Framework for Digital Signatures_ _And_ _Encryption,_
COM(97) 503, October 1997

29

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
cuJtural 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 selfregulatory practices by industry rather than on
formal re.gulation, 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 selfregulation to protect minors and human dignity in
audiovisual and information services, whatever
the means of conveyance.

61 Commission Communication, _Action Plan on promoting_
_safe use_ _of_ _the Internet,_ COM(97)583, 26.11.97

62 Proposal for a Council Recommendation on the
Protection of Minors and Human Dignity adopted on18
November 1997. COM(97)570.

(A) Does the convergence phenomenon
support or challenge the way in which public
interest objectives are achieved in the
telecommunications, media and IT sectors?

(8) 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?

J~~~.-9~!~_qli~~:rer''~J-f«liir~:.tf!11"~1·~*9~;:~oa~1···

Options for the structure of regulation

Chapter Ill 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

30

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 Ill.

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 Ill 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.

63 Op.cit. 19

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.

**Balancing Community and Member State**
**responsibilities**

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."

:_ .... :-<f:.,,>,

(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?

31

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 worldwide, 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

64 The Regulatory Implications of Telecommunications
Convergence, Chairman's Report of the Sixth
Regulatory Colloquium on the changing role of
government in an era of Telecom deregulation, ITU,
Geneva, 11-13 December 1996.

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 is~ues .
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.

65 The Internet society is a non-governmental professional
organisation whose aim is to develop a consensus on
solutions which promote progress of the Internet.

32

(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?

Whilst the aim of this Green Paper is to invite
comment and stimulate debate, rather than take
positions at this stage, this Chapter, drawing on
the previous analysis, sets out in Section V.1
below a number of principles which could
provide a common basis for future approaches in
the sectors affected by convergence. In Section
V.2, it sets out three options which the
Commission believes may stimulate debate
regarding the adaptation of current regulatory
approaches, where required, in the light of the
convergence phenomenon.

Irrespective of whether or not full convergence
occurs, the range of technological and market
trends, the potential barriers and the regulatory
issues identified in this Green Paper, all point to
a changing environment against which the policy
objectives of these sectors must be judged.
Future decisions must therefore not only be
derived from regulatory approaches closely
tailored to the sectors involved. They should
also be able to draw on a common

understanding of principles which could underpin
future action.

In this section, the Commission tentatively puts
forward five such principles for comment.

1. _Regulation_ _should_ _be_ _limited_ _to_ _what_ _is_
_strictly_ _necessary_ _to_ _achieve_ _clearly_
_identified objectives._

Given the speed, dynamism and power of
innovation of the sectors impacted by
convergence, public authorities must avoid
approaches which lead to over-regulation, or
which simply seek to extend existing rules in
the telecommunications and media sectors to
areas and activities which· are largely
unregulated today.

Any rules put in place should be tailored to
meet clearly identified objectives in a
proportionate manner,

2. _Future_ _regulatory_ _approaches_ _should_
_respond to the needs_ _of_ _u_sers_

A key priority of any regulatory framework
should be to seek to meet the needs of users
in terms of offering them more choice,
improving levels of service and lower prices,
whilst fully guaranteeing consumer rights and
the general public interest. Such an
approach is fully consist.ent with wider policy

33

goals which recognise the important role of
many of the sectors in bringing the
Information Society into citizens' everyday
lives.

3. _Regulatory_ _decisions_ _should_ _be_ _guided_ _by_
_a_ _need_ _for_ _a_ _clear_ _and_ _predictable_
_framework._

Regulators should seek to ensure a clear and
predictable framework within which business
can invest. Where issues can be left to
market players, this should be made clear.
Where new activities creates uncertainty as
to how and if they should be regulated, this
should be clarified.

This does not mean that the framework may
not evolve, but it should do so against
predetermined criteria, maintaining as far as
possible the flexibility to respond to changes
in a fast-moving market.

4. _Ensuring_ _full_ _participation_ _in a converged_
_environment._

Building on existing concepts of universal
service in telecommunications and the public
service m1ss1on in broadcasting, public
authorities should seek to ensure that
everyone is able to participate in the
Information Society. Convergence in this
context is likely to offer new means of
participation.

5. _Independent_ _and_ _effective regulators_ _will_

_be_ _central_ _to a_ _converging_ _environment._

Whilst the general trend is towards lighter
regulation, the increased competition brought
on by convergence underlines the need for
effective and independent regulators.
Regulatory independence is particularly
important where the state retains a shareholding in any market player.

\f.~.opti9n~··.fc>f r~gulal(>ry d~velopment

If it is established that there is need to consider
changes to the overall regulatory approach in the
face of the trends towards convergence, there
may be many ways of achieving such an
adaptation.

In considering possible approaches, a
successful formula is likely to require more than
just the creation of a flexible framework for new
types of services. It would also be essential to
provide a road map which allows the existing
framework to adapt or be adapted at a pace
which continues to ensure fair, nondiscriminatory market conditions and which
provides that users' interests are well served.

The speed and manner in which change is
managed are at the heart of the transitional
issues. This Green Paper cannot propose a
specific time table. Nevertheless, the
Commission anticipates the debate focusing
around three basic options for regulatory
developments, though such a list is neither
intended to be comprehensive nor closed.

_Option 1:_ _Build_ _on_ _current_ _structures_

In this situation, current vertical regulatory
models would be left in place. This means that
different rules apply in telecommunications and
audiovisual/broadcasting sectors, and to a lesser
extent in publishing and IT. Building on
established principles, these existing
frameworks at a EC and national level would be
extended on an _ad hoc_ basis, principally at
national level, to meet the demands of a
competitive market and the challenges of new
technologies and services.

Normal principles of interpretation would be
applied on a case by case basis to resolve
questions of where particular activities might fall.
To the extent necessary, co-ordination might be
strengthened at a European level to attempt to
minimise the .risk of fragmentation through
national rules being applied differently in
different Member States to emerging services.

The pace of change would be dictated by the
speed of innovation and the effectiveness of
competition. This would allow the regulatory
framework to adapt in response to market forces
and the need for a fresh round of
deregulation/regulation could be avoided.

Such an approach would minimise the need for
change in the near future, and could be effective
in providing a predictable regulatory framework
for investment, whilst avoiding the creation of
unjustified barriers within the internal market.
However, it might leave in place certain
anomalies which today deter investment.

The pace and scope of change, if not coordinated at a European· level, could risk
creating significant new barriers between
Member States and slowing the transition to the
Information Society.

_Option 2: Develop a separate_ _regulatory_
_model_ _for_ _new_ _activities, to_ _co-exist_ _with_
_telecommunications_ _and_ _broadcasting_
_regulation_

This option would mean that Member States
would "carve out" new services and activities
which cross traditional boundaries, placing them
under a distinct set of rules, if rules are needed
at all. This would allow a co-ordinated approach
to be developed in relation to many of the high

34

value activities which characterise the

converging market place, by creating a new
category of services alongside existing
regulatory models for telecommunications and
broadcasting. Essentially, the result would be to
move away from technology-based or platformbased market boundaries for a wide-range of
services, whilst allowing the framework for
traditional core telecommunications and
broadcasting activities to be adapted more
gradually.

The principle difficulty in such an approach is
determining the boundaries of what may be part
of a lightly regulated,· new service world and
what remains subject to traditional regulation.
One approach might be to identify certain types
of service, e.g. Web-TV or the Internet or the
operation of conditional access systems,
negatively as neither telecommunications nor
broadcasting. Experience in the telecommunicatiors sector with a delimitation of liberalised
services, on the basis of defining only what is left
in the monopoly area, shows the practical
difficulties of such an approach.

_Option 3: Progressively_ _introduce_ _a_ _new_
_regulatory_ _model_ _to_ _cover_ _the whole range_ _of_
_existing_ _and_ _new_ _services_

This option is the most far-reaching. It calls for a
fundamental reassessment and reform of today's
regulatory environment.

This does not necessarily imply a whole new set
of laws, but rather looking to see how existing
frameworks can be adapted to promote
flexibility; remove inconsistencies, avoid
discrimination within and across sectors and
continue to ensure the achievement of public
interest objectives. Instead of applying to just
some services (as proposed in Option 2), this
option would create a framework covering all

sectors.

This option would require a broader definition of
communication services to supersede those of
telecommunications and audiovisual services
within Community legislation. Proportionality
would be a necessary feature of the new
environment given that within such a broad
definition, the level of regulation would have to
be matched to the nature of the service and the

intensity of competition.

Such an option might be considered to be too
ambitious. However, it would not necessarily
lead to sudden disruptive change. The approach
could be graduated, focusing in the first instance
on priority areas in which a consistent regulatory
approach is required (e.g. network operation or
access issues). Another key feature of this

approach would be to allow sufficient time for
migration from the old to a new regime.

{A) What effect will convergence have on
the principles for future regulation applied in the
telecommunications, _media_ and IT sectors, and
should those principles be adapted in the light of
convergence?

(B) If convergence requires adaptation of
existing regulatory ~pproaches, should that
adaptation:

(i) seek to build on, and if appropriate, extend
existing frameworks, rather than create new

ones;

(ii) create a new framework for many on-line and
interactive services, to co-exist with the those
currently applied to traditional telecommunications and broadcasting activities, or

(iii)seek to create a comprehensive framework
applying similar regulatory approaches to all
three sectors.

v:~:T•m~.~§(i:!2i:,fq!ijf~.·~.cti9Ji•···:·····

The following outline schedule of activities is
envisaged:

   - A five-month public consultation period
(December 1997 to April 1998 inclusive).

  - • A report on this public consultation to be
prepared by June 1998.

   - The Council and the European Parliament
are expected to adopt any Resolutions on
this matter in the second quarter of 1998.

    - In response to these resolutions, the
Commission could prepare a Convergence
Action Plan by the end of 1998.

   - The already-announced Telecommunications
Review will be conducted in 1999.

Interleaved with these. milestones will be a
number of important activities in the media field.
The Oreja High-level Group on audiovisual
policy has been convened and is expected to
report in September 1998. A major conference
on the matter is scheduled to be held in April

35

1998 in Birmingham, under the joint sponsorship
of the British Presidency and the Commission.

This Green Paper analyses the convergence
phenomenon and its implications for the existing
regulatory frameworks governing the
telecommunications, media and information
technology sectors.

The implications of these developments are far
reaching. Convergence is not just about
technology. It is about services and about new
ways of doing business and of interacting with
society. The changes described in this Green
Paper have the potential to improve substantially
the quality of life for Europe's citizens; to
integrate Europe's regions better into the heart
of the European economy, and to make
businesses more effective and competitive on
global and national markets.

The emergence of new services and the
development of existing services are expected to
expand the overall information market, providing
new routes to the citizen and building on
Europe's rich cultural heritage, its potential for
innovation and its creative ambitions.

The global nature of communications platforms
today, particularly, the Internet, are providing a
key which opens the door to the further
integration of the World economy. At the same
time, the low cost of establishing a presence on
the World Wide Web, is making it possible for
businesses of all sizes to develop a regional and
global reach. Globalisation will be key theme in
future developments, as changes in Europe are
mirrored by developments all over the World.

If Eur.ope can embrace these changes by
creating an environment which supports rather
than holds back''the process of change we will
have created a powerful motor for job creation
and growth, increasing consumer choice and
promoting cultural diversity. If Europe fails to do
so, or fails to do so rapidly enough, there are
real risks that our businesses and citizens will be

left to travel in the slow lane of an information
revolution which is being embraced by
businesses, users and by Governments around
the World.

The issue involved are complex and will require
much discussion before any new Community
initiatives can be proposed. The Green Paper is
intended to launch such a discussion and all
interested parties are invited to participate. It is
hoped that this discussion will be profound and
far reaching. The results of this public
consultation will be reported in a Commission
Communication in June 1998.

This Green Paper represents a step on the way
to securing the benefits of convergence for
European social and economic development.
The June Communication will allow political
positions to be taken by the European
Parliament, the Council of Ministers, the
Economic and Social Committee and the
Committee of the Regions, and for clear
objectives for future policy to be established.

This Green Paper initiates a new phase in the
European Union's policy approach to the
communications environment. As such it

represents a key element of the overall
framework put in place to support the
development of an Information Society. It builds
on the current strengths of the frameworks for
telecommunications (launched by the landmark
1987 Green Paper on telecommunication [66] ) and
for media (established by various Community
legislative initiatives), and offers all interested
parties an opportunity to comment on the future
shape of regulation, in the post-1998
communications environment, in the sectors
affected by convergence.

This first step is intended to pave the way for the
development of an appropriate regulatory
environment wtiich will facilitate the full
achievement of the opportunities· offered by the
Information Society, in the interests of Europe
and it's citizens as the 21st century begins.

06 COM(87) 290 final

3G

This annex describes existing the regulatory
environments in the European Union for
telecommunications and media sectors. The

absence of regulation in the IT field is also

noted.

**Telecommunications regulation is gearing** **up**
**for full liberalisation**

A clear framework for effective competitio~
throughout the European Community has now
been put in place and is,at an advanced stage of
implementation in national law as the 1998
deadline approaches. In reality the transition
from monopoly to effective competition has
required a profound reform of regulation in the
telecommunications sector, with rules agreed to
set the dates for liberalisation of the sector and
to provide a common regulatory framework
covering, _inter alia:_

   conditions for market entry (e.g. common
framework for licensing - procedures,
timetable and conditions which may be
attached)

  maintenance of public interest (e.g. a
framework guaranteeing the delivery of
universal service and specifying consumer
rights in relation, for example, to the voice
telephony service; and rules covering data
protection and privacy);

  - interconnection and interoperability of
services and networks, and fair allocation
of resources (e.g. access to numbers,
availability of radio-frequency spectrum)

A fundamental consideration has been the need
to limit regulation to the minimum required to
secure the overall public interest and to enable
effective entry and sustainable competition.

The focus of the regulatory framework for
telecommunications has been on networks and
service provision (including aspects linked to
safeguarding the public interest) and not on the
regulation of content carried over those
networks. Three aspects of this focus on an
internal market for telecommunications can be
highlighted:

  - the removal of barriers to investment and

innovation within the internal market;

  ensuring conditions that support panEuropean networks and services;

  maintaining a defined level of service for

users

The WTO/GATS agreement on basic
telecommunications reached on 15 February
1997 is fully in line with the EC regulatory
framework for the sector. This applies not only
to the dates set for liberalisation, but also with
regard to the underlying regulatory principles.
The deal does not cover broadcasting and it only
applied to telecommunications (transport)
services. Thus it does not cover any "content
services [67] " which may be transmitted through
telecommunications services ..

**Audiovisual regulation**

At a Community level, current audiovisual
regulation aims to achieve the free circulation of
services in accordance with Article 59 of the
Treaty. It is an example of the application of
subsidiarity whereby Community legislation has
been adopted solely when absolutely necessary
to achieve the aforementioned Treaty objective.
National rules have been co-ordinated to the
degree necessary to remove barriers resulting
from disparities between these regulations, when
such rules are justified for legitimate public
interest reasons.

Historically, the Court of Justice has recognised
that in the absence of harmonisation at a
Community level, Member States could impose
their national rules on service providers from
other Member States, where those rules pursued
a general interest objective and were
proporticff1al to achieving that objective. [68 ] This
case law led to the adoption of the main
Community instrument in this area, the so-called
_Television Without Frontiers_ Directive (TVWF)
which co-ordinates national regulations in a
number of fields relating to the provision of
broadcast services Uurisdiction criteria,
advertising, sponsorship, tele-shopping,
protection of minors, public order, right of reply,
promotion of European programmes).

This Directive is based on the principle of "home
country" control, i.e. control by the ciuthorities in
the country of origin under whose jurisdiction the
broadcaster falls. It has proved its effectiveness

67 The EC GA TS commitments on basic

telecommunications services exclude the economic
activity consisting of content provision which require
telecommunications services for its transport, such
content provision being subject to the specific
commitments undertaken by the EC in other relevant
sectors. The EC has not undertaken any GATS
commitments on audiovisual/broadcasting services.
There are also some exemptions to the MFN {MostFavoured-Nation) principle in audiovisual services in
order to protect cultural values.

68 Case n° C52/79 of 18/3/80 Procureur du Roi v. Marc

J.V.C. Debauve

37

in the current broadcasting environment. [69]  - A
Directive [70 ] amending the original 1989 text was
recently adopted in order to adapt the legal

- framework to change within the audiovisual

landscape. The new Directive must be
transposed by the end of 1998; the Commission
will ensure that this process is rigorously brought
to fruition.

The Directive leaves certain matters to the
Member States, one of which is licensing. It was
not considered that differences in these areas
would create obstacles to the functioning of the
Internal Market, i.e. to the free movement of
television broadcasts. The Member States are
required to ensure that broadcasters within their
jurisdiction meet the minimal rules laid down in
the Directive, but [in accordance with Article
189(3) of the Treaty] may decide how such
obligations are to be implemented at national
level.

Two further initiatives have been taken, in part
with the purpose of supplementing the TVWF
Directive in creating the legal framework for the
'European audiovisual area'. In 1993, the
Council adopted a directive on the co-ordination
of certain rules concerning copyright and rights
related to copyright, applicable to satellite
broadcasting and cable retransmission. [71 ] More
recently, the Commission has proposed a
directive on the legal protection of conditional
access services. [72 ]

Apart from the above-mentioned Community
initiatives, audiovisual regulation is largely
national in scope. The typology of regulation of
audiovisual services is generally either positive
(an obligation to fulfil e.g. provide a balanced
range of programming) or negative (regulation to
limit certain types of materiel e.g. incitement to
racial hatred). Positive obligations are often met
in practice, to varying degrees from one Member
State to another, by broadcasters vested with a
public service mission. Existing regulation is
based in part on the widespread availability of
television (its "pervasiveness"). It is clear that
regulation must meet a proportionality test, and
in a digital age it should and indeed is already
evolving. This means that a lighter regulatory
touch could be appropriate as a function of the
nature of the service (e.g. satellite or cable payper-view is generally more lightly regulated than

69 See "Second Report on the Application of Directive
89/552/EEC" COM(97)523 final of 24/10/1997

70 Directive 97/36/EC amending Directive 89/552/EEC, the
'Television without Frontiers' Directive, 30.06.1997, JO L
202, 30.07.97, p.60.

71 Directive 93/83/EEC, OJ L248, 6.10.93

72 COM(97) 356 final of 9. 7 .1997

terrestrial free-to-air television, arguably the
most pervasive of all media).

**Publishing and IT**

The publishing sector operates within a
framework of more limited sector-specific
regulation compared to telecommunications and
audiovisual/broadcasting sectors, and there are
fewer regulatory barriers to entry (in the sense of
formal licensing requirements), although there
are stringent rules applying to this sector.

At the same time, a range of controls are
applicable to the broadcast media (for example,
those relating to pluralism, foreign ownership
and right-of-reply) also apply in some form to the
publishing sector (and, in particular, the press),
reflecting public interest objectives common to
both sectors. However, the implementation of
some of those principles for the publishing
sector is through self-regulatory bodies, such as
Press or Industry Councils or Codes of Practice,
in contrast to the stronger powers for regulatory
intervention in the broadcasting field. In addition
many of the general rules related to public
morals, advertising, libel, privacy, intellectual
property protection, access to public documents,
also apply to the publishing sector.

The Information Technology and software
industries have even less of a tradition of sectorspecific regulation, though once again horizontal
rules relating to issues such as export controls,
electro-magnetic interference; or consumer
protection would apply, as would general
competition law.

The Internet is more closely associated with IT
and software industries than with

telecommunications whose infrastructure its

uses. Whilst the network over which much of
the Internet traffic flows is subject to detailed
regulation; the organisation, management and
allocation of resources within the Internet has
been largely industry and user-led. The
Community has actively supported an industryled approach in its work on harmful and illegal
content on the Internet, and more generally in
the media. [73 ]

Whilst approaches may be changing, particularly
in key areas such as naming and addressing,
there has been little sector-specific regulation of
the Internet in Europe. [74 ]

73 Op cit. note 28 see _Green Paper on the protection_ _of_
_minors and human dignity in audiovisual and information_
_services,_ COM (96) 483, 16.10.97 and _Communication_
_on_ _the illegal and Harmful content on the Internet,_
COM(96) 487, 16.10.97.

74 This contrasts with the approach in Singapore, Vietnam,
or China, where restrictions have been put in place.

38

ISSN 0254-1475

### COM(97) 623 final

## DOCUMENTS

### EN 04 05 15 16

###### Catalogue number CB-C0-97-701-EN-C ISBN 92-78-28995-7

Office for Official Publications of the European Communities

L-2985 Luxembourg