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Working Document of the Commission (SEC(98)1284)

The UK considers it essential that consumers should have easy access to digital services, underpinned by fair and effective competition between service providers. It is important both to retain flexibility and to recognise that different regulatory approaches may work for different parts of networks and different "gateways", taking into account the situation in each particular market involved. Whilst recognising that sector-specific regulation is likely to remain necessary in some areas to achieve public policy objectives, the potential for action offered by existing competition laws and impeding UK competition legislation based on Articles 85 and 86 should not be underestimated.

By promoting competition in all areas of the market and throughout the country, the UK Government is encouraging investment in both infrastructure and services. The key is to provide a regulatory framework which encourages new entry and competition, and which, while flexible enough to evolve, provides sufficient stability over the investment cycle to ensure early investment takes place.

The UK sees a continuing and important role for public service broadcasters, not only in providing material which might not be produced by commercial operators, but also in acting as a quality benchmark for commercial services.

The UK’s general principle is that sector-specific regulation should be used to the extent necessary to achieve our public policy objectives, and no more. It is unlikely to be possible to devise a predetermined and durable set of universally applicable criteria for ensuring that sector specific rules are proportionate in taking account of the nature of the service concerned and the legitimacy of the public interest objectives pursued. Self-regulation is likely to play an increasing role in the area of content regulation, although there may be a need for statutory backstops to ensure that self-regulation is effective.

The UK has the following comments to make on the three detailed questions raised in the Commission’s paper.

Question A Access to networks and digital gateways in a converging environment

The UK has identified four key critical access issues in its public policy objectives outlined in its 1998 green paper "Regulating communications: approaching convergence in the Information Age" (available at http://www.dti.gov.uk/converg/).

2 Public policy objectives relating to critical access include the need to:

• secure wide-spread access to services - there should be no divide between "information haves and have-nots"
• provide universal service - no one should be denied access to the basic telecommunications network because of poverty or location
• encourage consumer choice - through increased competition and innovation, improved quality and price reduction
• promote investment - regulatory framework should encourage both inward and domestic investment , new entry and competition

3 The UK considers it essential that consumers should have easy access to digital services, underpinned by fair and effective competition between service providers. It has introduced the Advanced Television Standards Regulations implementing Directive 95/47/EC to ensure that digital conditional access systems are available to competitors on fair, reasonable and non-discriminatory terms. These provisions are enforced by the Office of Telecommunications (OFTEL). The UK has already identified some of the limitations of the Directive, which only applies to digital television services, and has extended the principle to put in place provisions regulating access control for interactive services. The Independent Television Commission (ITC) also has a role in monitoring issues arising in "gateways", including electronic programme guides (EPGs) and is using its powers under the Broadcasting Act 1996, in collaboration with OFTEL, to ensure maximum possible inter-operability of digital decoding equipment for television.

4 It is important both to retain flexibility and to recognise that different regulatory approaches may work for different parts of networks and different "gateways". One of the ways access is obtained is through the use of the radio spectrum. This is a finite resource and there are difficulties in some parts of the spectrum in providing both for new services and the growth of existing ones. Obtaining spectrum for new services raises issues requiring a very different approach to those which apply to other access issues, because managing a resource involves criteria in addition to promoting investment or encouraging consumer choice. The reality is, however, that all these issues are inextricably linked. In relation to spectrum management there is a balance to be struck between market forces and regulation - hitherto spectrum management has been totally by regulation but market forces (through spectrum pricing and, possibly in the future, spectrum trading) now have a greater role to play.

5 Sector-specific regulation is therefore likely to remain appropriate for the broadcasting and telecommunications markets at least until such time as the markets become fully competitive. It will also continue to be necessary to cover the provision of access control to digital services wherever the provider of that access control would have a significant opportunity to exercise bottleneck control (thereby unduly influencing competition in the associated markets).

6 Whilst recognising that sector-specific regulation is likely to remain necessary, the potential for action offered by existing competition laws as applied by the Director-General of Fair Trading (DGFT) should not be underestimated. (The Director-General of Telecommunication (DGT) has concurrent powers with the DGFT to apply UK general competition legislation in respect of monopolies and anti-competitive practices to the telecoms sector). The new Competition Bill, which is awaiting Royal Assent, will introduce a prohibition-based approach to competition law based on Articles 85 and 86 of the Treaty of Rome. The prohibitions will be enforced by the DGFT, who will have strengthened investigations powers, the ability to take interim measures and to impose financial penalties. As for existing law, the DGT will have concurrent powers to exercise the prohibitions in the telecoms sector. The ability of the DGFT/DGT to take interim measures should act as a strong disincentive to any abuse, whilst allowing innovation to proceed.

7 In principle the essential facilities doctrine (and Article 86 more generally) can address issues of access, or could be developed to do so. Relying on general competition law would have the advantage of greater flexibility and less likelihood of being overtaken by unforeseen developments. However if the essential facilities doctrine were developed too far it might undermine the incentive for firms to innovate and invest. And in any event sector-specific regulation would still be required where there are particularly complex issues on access that need to be thrashed out and codified in advance, or where rules that will affect future access may need to apply before the market itself exists (though again, care needs to be taken in developing such rules as these too may have the unwitting effect of restricting opportunities for investment and innovation).

8 In considering how to promote access to networks, account needs to be taken of the situation in each particular market involved. The UK has had a policy of promoting investment in infrastructure and the development of infrastructure competition. It is important now to maintain investment both in infrastructure and in services in order that business and domestic consumers can have available the services that they need. This will be particularly important for Broadband services in the future. In order to secure these ends, competition and the operation of the market is to be preferred over regulation. To the extent that regulation is required, some approaches to network access, such as local loop unbundling, will necessitate the involvement of the regulator on a long term basis. In the UK the approach will be to secure competition in the provision of Broadband services, and a consultation will be held in the UK on this matter before the end of the year.

9 Moreover, consideration needs to be given to the business case facing network operators and service providers so that each may secure a satisfactory return on their investments. Again, a market approach involving commercial agreements is more likely to achieve this result than a regulated arrangement in which the return to the parties is essentially determined by the regulator

Question B Creating the framework for investment, innovation, and encouraging European content production, distribution and availability

10 By promoting competition in all areas of the market and throughout the country, the UK Government is encouraging investment in both infrastructure and services. The key is to provide a regulatory framework which encourages new entry and competition, and which , while flexible enough to evolve, provides sufficient stability over the investment cycle to ensure early investment takes place. Approaches to regulation should take account of the need to encourage both investment and innovation in the provision of services. The UK framework for regulating cable and satellite services, and digital terrestrial broadcasting is deliberately light touch to encourage investment in these services and enable them to compete effectively with the established free-to-air analogue terrestrial services.

11 It is important that the impact of regulatory framework changes on the traditional content providers, the publishing industry, as they enter the new media should not be overlooked. Publishers will be affected by regulatory changes, either directly, or because their competitive position in relation to other players in similar markets has been changed. For example, electronic publishers argue that on-line publishing services should be regulated on the same basis as books (i.e. through a reliance on competition law). This emphasises the need for appropriate regulation, avoidance of the extension of regulation in previously unregulated sectors and provision of a level playing field for all interests in the development of any new framework. The maintenance of an effective system of copyright protection with tough action against piracy is also essential if there is to be a strong content industry.

12 The UK sees a continuing and important role for public service broadcasters, not only in providing material which might not be produced by commercial operators, but also in acting as a quality benchmark for commercial services. We also consider that the existence of a competitive programme supply market will assist in building an effective production base for European audio-visual content. The 1990 Broadcasting Act placed a statutory requirement on the BBC, Channels 3,4, and 5 to obtain at least 25% of qualifying programmes from independent producers.

C Ensuring a balanced approach to regulation

13 The government is currently consulting on the regulatory approach needed to address issues that arise out of convergence. Because of rapid expansion in communications technology, any form of regulation must be flexible enough both to respond to market developments and changes in consumer expectations, and to deal with unpredictability - including the withdrawal of regulation when market conditions are sufficiently competitive. Encouraging innovation is essential as international competitiveness may be hampered by restrictive regulations which seek to foresee the unforeseeable. Our general approach in the UK is to minimise regulatory interventions and ensure that regulations are applied with a light touch.

14 Public policy objectives in this field include securing widespread access to services, providing universal service, securing consumer choice, achieving competitiveness, promoting investment, fostering competition, securing plurality of voice and impartiality, providing diversity of content, promoting high-quality content and upholding taste and decency. These objectives need to be addressed in a manner which is fair, transparent and non-discriminatory, taking account of the different market situations and different policy environments which apply in the different Member States. A set of principles and measures which may be appropriate for the situation in one Member State, given its market development and cultural inclinations, may well not be applicable for others. There is unlikely to be a single "right" balance applicable across the Community and therefore unlikely to be a particular "right" set of principles and measures which will procure the desired outcomes. Sector-specific regulation should therefore be the minimum necessary to achieve public policy objectives.

15 Similarly, it is unlikely to be possible to devise a predetermined and durable set of universally applicable criteria for ensuring that sector specific rules are proportionate in taking account of the nature of the service concerned and the legitimacy of the public interest objectives pursued. The measures which will be most appropriate, and the ways in which they are assessed to see whether they are proportionate, will very much depend upon the particular case in question. The UK’s general principle is that sector-specific regulation should be used only where necessary to achieve our public policy objectives. It is important that existing regulatory solutions are not simply extended to new services. There would, for example, be great difficulties if public service concepts and obligations were imposed on commercial markets with little previous knowledge or experience of such measures.

16 The UK Government is keen to, and does, encourage new services and innovation. However, if spectrum is to be used we need to remember it is a scarce resource, and, although we cannot second guess the market, we need to try to ensure that when allocations are made to new services they are likely to be successful. Otherwise it will mean that other users may have to be refused access to the spectrum unnecessarily. In the context of new products, evidence of the use of the service - as well as manufacturing capability - are "public interest" factors. The UK view (supported by the experience of other countries) is that spectrum auctions, used selectively, offer considerable advantages in terms of speed, fairness, economic efficiency, transparency and openness. Some of the concerns expressed in the Commission’s working document about over-bidding show little faith in business’ ability to judge how much licences are worth, and can be met by careful auction design.

17 Self-regulation is more likely to play an increasing role in the area of content regulation, although there may be a need for statutory backstops to ensure that self-regulation is effective. Account will need to be taken of how consumers access services, what expectations they have with regard to content and whether they have the ability to filter unsuitable content through the use of technology or voluntary rating systems. The Internet is the classic example of where we are using self-regulation to achieve our public policy goals. This is a medium which is very fast-moving and where services are provided on-demand to the user, making it extremely difficult to regulate in a traditional manner. The Internet Watch Foundation (IWF) provides a good example of a self-regulatory mechanism backed up by the full force of the law where appropriate. It involves interested parties including industry, Government, law enforcement authorities and other appropriate interest groups such as consumers and children’s charities.

18 The UK also has specific media ownership rules in the Broadcasting Act 1996, which apply in addition to general competition law. They are designed to protect plurality by preventing undue concentrations or excessive influence. For example, in the case of analogue TV no one person is allowed to hold or control television licences where the audience amounts to more than 15% of the total television audience. Similarly, there are restrictions on cross-ownership between television, radio and the press. The restrictions apply only to television, radio and the press as these are the dominant, most influential means of informing the public. The UK considers that such restrictions are likely to remain appropriate for the foreseeable future. But they are unlikely to be extended to other forms of media, such as consumer publishing or on-line services, where we wish to foster pluralism and diversity by encouraging new entrants through the effective use of competition rules. While these restrictions apply to newspapers, they do not extend to on-line newspapers because they are not so readily accessed and contribute little to a newspaper’s influence. Our media ownership restrictions are among the most liberal and are designed to balance the needs and aspirations of an expanding media industry against the need to protect media pluralism.

November 1998

Department of Trade and Industry
Department for Culture, Media and Sport

c/o UK Permanent Representation,
Avenue d'Auderghem 10,
B-1040 Brussels (Belgium)
Tel: +32.2-287.8211
Fax: +32.2-287.8395