Sep 8, 2016

Policy And Regulatory Challenges Posed By Convergence In The Broadcasting Industry - Yahaya Maikori

Since the earliest days, the telecoms and broadcasting industries were seen as entirely separates industries. As such, the regulatory regimes that developed around them were based on specific technology platforms, with different rules for each distinctly perceived industry. This approach was widely followed around the world.

The current framework of regulation has worked well for many years until. new developments in interactive digital broadcasting and the roll out of high speed Internet infrastructure -  the fast-changing environment has brought about convergence of both industries.

So what is “convergence”? The Webster dictionary defines convergence as “act of moving towards uniformity or union” or “the merging of distinct technologies, industries, or devices into a unified whole” .If we apply this definition to the broadcast industry we can see that the ongoing process of convergence between the broadcast and the telecommunications industry. 

In order to identify some of the regulatory issues related to convergence, we need to consider two existing convergent systems and their implications -  VoIP and IPTV , which are already deployed and in commercial use around the world. 

While VoIP allows a cable television operator or ISP to enter the voice telephony market, which traditionally has been the mainstay of telcos, IPTV allows telcos or ISPs to begin television-broadcasting services. Convergence can thus enable the entry of telecom firms into broadcasting or broadcasters into telecom service provision.

 In each case, the firm making the entry will be subject to different regulations if they are regulated on the basis of the service they intend to provide. For example, if a telco starts to offer IPTV based television broadcasting, it might have to follow content regulation guidelines that otherwise are usually absent in telecom services. On the other hand, if a cable operator begins to offer VoIP based telephony, it might have to offer emergency services connectivity (e.g. 911 service in the United States). However, these rules are not entirely clarified for such new entrants because these entrants do not fall squarely into the traditional categories.

The development of convergent services by telecommunications and broadcasting operators is principally fuelled by the wish to maximize profit through the provision of a wide range of multimedia products and services to the consumers, made possible through digital technology revolution. 

As the process of convergence continues it raises specific regulatory challenges given the merging of firms, sub-sectors, and facilities between telecommunications and broadcasting affects not only the carriers, but also regulatory authorities. The fundamental source of this challenge is the need to reconcile different regulatory philosophies in the sub-sectors of  both industries. On the one hand, broadcasting is heavily regulated, and is less competitive, and often has a merged content carriage setup. Telecom services, on the other hand, are regulated to a lesser extent, with little to no control exerted over content, a greater emphasis on carriage regulation, and with competition in most markets.

Hence, applying regulation based on existing regulatory regimes to new emerging convergent services may not be effective in being able to bring about desired regulatory results which makes it appropriate to conduct a health-check of our regulation, to ensure that it remains coherent, and that the current delineations remain appropriate, and to guard against a range of possible risks.
So what have the challenges been or what are the changes going to be for regulators and policy makers as we move into a more converged environment?

Authorizations and licensing
In traditional regimes, authorization and licensing of service providers could be based on the type of service (voice, data, and video) or technology (cellular, fixed telephony, terrestrial broadcasting). However, in a converged setting, it is difficult to maintain these boundaries because of the overlaps that arise: broadcasters (e.g. cable companies) are offering telecom services (Internet, voice), while telecom services (e.g. phone companies) are offering broadcasting services (IPTV). Further, cellular operators are providing mobile television services.

Competition (ownership)
Traditional broadcasting industry rules about media ownership have restrictions on the monopoly of one owner on both different media (known as concentration limits) and across different media (cross-ownership limits). These limits are in place to enable diversity in the content and ideas presented by the media. Some countries have regulations in place that do not allow firms to have both telecommunication and broadcasting operations. While in the US the efficacy of these line-of-business restrictions is dependent on how services are defined in the context of multiple plays. For example, regulators would need to decide if video provided to mobile terminals is considered broadcasting or whether VoIP is a complete substitute for analogue voice services.

Additionally, regulators must also ensure that convergence in terms of mergers and acquisitions does not hamper competition. As evident now, markets may have very intense consolidation activity throughout the media industry, and in the near future, in the telecom industry as well. As firms merge, it is important that convergence across sectors, such as cable television and mobile telephony, or in one sector, such as content production and distribution, does not result in a monopolistic market structure. 

Market access
Convergence allows new entrants the means to enter into protected markets. In provision of TV over IP, for example, cable and terrestrial broadcasters will spar with telcos about whether their heavily regulated and restricted sector should be opened up. Similarly, the bundling of video, voice, and data in packages by cable companies will mean another threat to telecoms providers who are used to a monopoly over voice, and have had to deal with Internet telephony.

Such a shift changes the competitive environment and radically alters existing revenue streams and sector economics. For example, in the U.S.A. in 2005, the number of Verizon’s fixed telephone subscribers declined the most in the New York metropolitan area, where it faces the most competition from cable operators offering voice services. In a shifting environment, it is essential that governments reduce regulatory risk and the possibility of discretion Convergence opens up the possibility of greater competition that will benefit consumers with aggressive pricing, increased availability, and competitive service packages.
However, it also opens up closed or restricted markets to new entrants. Market access has typically been heavily regulated, with governments often charging high licensing fees or taxes to traditional service providers. Hence, with increased competition, returns on investments that were made with the assumption of restricted competition will change. This adjustment is significant for the investors and requires a clear and transparent introduction.

Privacy and law enforcement
If VoIP calls travel over public Internet or other publicly accessible networks, it is possible that the privacy of telephone calls, which is a legal guarantee in most countries, will be compromised. On the other hand, VoIP might be a
security threat in case government or law enforcement agencies want to survey voice conversations. Since these calls do not travel over a circuit switched network, and do not have constant telephone numbers associated with the caller or receiver, they might be able to escape surveillance. Governments will thus have to balance privacy rights with law enforcement or surveillance objectives.

Content regulation
With converged content delivery mechanism, content formerly dedicated to specific networks now can be conveyed on different infrastructures and delivery platforms. This poses a potential conflict in regulation as governments usually apply different standards of content regulation to telephony, sound and television broadcasting, print media and the Internet. With convergence, policies may need to be changed to achieve the common.

Some of the issues regulators face regarding content regulation are:
·     Applicability of public service provisions
·     Cultural diversity, local content quotas and local production of content
·     Programming standards associated with accuracy and impartiality in the reporting of new and current affairs
·     Intellectual property rights
·     Role and means of supporting public broadcasting
·     Programming standards associated with decency, censorship, and freedom of speech
·      jurisdictional issue is the concept of data sovereignty, in other words that digital information is subject to the laws and regulations of the country in which it is stored.

Every government has to make decisions about how to react to convergence. For many, the choice is between continuing with the status quo and modifying their regulatory regimes to respond to convergence. However, given the almost certain migration of networks towards IP-based convergence in the next few years, the question becomes – how should governments pace themselves to respond to convergence. Local cultural,political, and economic realities play a role in the decision-making process and timing of regulatory reform. 

To get some guidance on how  other countries have responded to convergence lets look at these 3 countries :
Case studies
US case.
The main regulator in the ‘information delivery’ market is the Federal Communications Commission (FCC). The FCC is in itself not a ‘converged’ regulator, as it shares its competences at the federal level with the Department of Justice (DoJ) and the Federal Trade Commission (FTC), dealing with competition and consumer protection policy; and at the state and local level with the state public utility commissions (PUCs).

Also with respect to convergence, there is no grand strategy but more of a ‘muddling through’ approach. The US system depends to a great extent on court rulings, and an active civil society involvement. However, where the FCC intervened, its decisions had a major impact on Multi sectorial approach convergence and market developments. The intervention to ensure local market competition lead to a nation wide telecommunication duopoly; deregulation of broadband access supported cable operators, as telecommunication networks remained regulated; and the dilution of media ownership rules have boosted the online presence of major broadcasters. 

The reactive nature of the US approach provides for a very predictable, robust regulatory environment in which new entrants can challenge existing practice. This has allowed breakthrough rulings and keeps the FCC at the forefront of setting policies dealing with the effects of convergence. However this comes at a high legal cost and allows incumbents to delay or stop new players from entering. The US is one of a few countries with strong inter-modal broadband competition between Digital Subscriber Lines (DSL) and cable modem, and with a significant Fibre-to-theHome (FTTH) development. However, the FCC has been less effective to ensure competition over the networks, which is also reflected in the fierce debate over net neutrality, which has not (so far) been much of a concern to European regulators. All in all the US market and its regulators provide a lot of interesting cases as it is here where the innovation is highest and regulatory challenges come to the fore. The US is also an interesting market to observe as it has pioneered with new policy instruments like selfregulation and sophisticated spectrum auctions. A major difference between the US and many other countries is the comparatively low level of content regulation in the US, making it easier to accommodate convergence of content distribution. 

UK case.
The UK communications market is one of the more competitive in Europe and is characterised by a complex industry structure with a dominant telecom incumbent, a mix of good (uptake of digital television, content diversity) and bad (broadband penetration, price and quality) performance, a content industry strongly affected by a public sector incumbent, the BBC and a converged regulator employing highly sophisticated tools and closely engaged with industry, community and academic communities. 

The UK case stands out as having the most ‘converged’ regulator, (office of communications) Ofcom, which was deliberately formed out of a merger of five existing regulators to deal with the new realities of integrated information delivery markets. However, Ofcom does not serve as a comprehensive and independent regulator of all aspects of the information delivery chain. It is more appropriate to think of it as a central platform on which converging issues, tools and styles of analysis can be integrated and through which the activities of key policy stakeholders can be coordinated. Ofcom is independent and has significant policy setting, supervisory and regulatory powers, which it applies with a strong inclination towards liberalised markets and deregulation. Ofcom’s duties fall under separate government departments and thus separate Commons Select Committees. There is no single structured House of Lords system of oversight of Ofcom. The UK case is interesting as Ofcom strives to lead the way in many areas; actively procuring and conducting research, piloting new spectrum auction designs, conducting wide scale consultations, engaging stakeholders and supporting self regulatory solutions, especially in the internet domain and the area of audiovisual content. It uses its position to  support innovation and competitiveness whilst protecting the interests of consumer support innovation and competitiveness whilst protecting the interests of consumers. 

South Korean case .
South Korea has a dynamic market environment, high broadband penetration, and apparent leadership in the development of converged services. Its market development is mostly dominated by large telecommunications companies, less by bottom up innovation of new entrants or content industry. The government has actively supported the roll out and access to broadband (FTTH) and embraces ICT as the main driver of competitiveness for the Korean economy. The convergence trend in South Korea was lead by the market and the government was relatively slow to follow. After 2004 it has initiated a reform process of its market governance and regulation, in response to convergence. 

The government sees convergence as a positive development and a policy goal in itself, with high potential for innovation and new service development. South Korea chose to adopt the single regulator model by merging the telecommunications regulator MIC and the Broadcast regulator KBC in the new KCC(Korean communications commission). KCC has been given a broad remit involving a range of technical, economic, and societal objectives. However, this converged approach is only partially implemented, as its reporting structure continues to follow the segregation between broadcast and telecommunication and there remains a rift between the legacy regulators as to the structure of a new ‘converged’ communication regulation. Overall South Korea demonstrates the ability and drive to balance the technological, economical and societal (TES) objectives. 
This balance is influenced by regulatory legacy, with content policy being dominated by societal concerns and telecommunication policy by the market and technology perspectives.

In the application of new policy instruments South Korea is less advanced than the UK and the US. Spectrum auctions have so far not been used as allocation mechanism. SK still relies mostly on beauty contests and administrative pricing, with a very prescriptive approach to usage and technologies to be applied. Much effort has gone into creating secondary spectrum markets and reuse of abandoned spectrum, but without notable effect so far. South Korea has access to significant private and public research capacities to support forward looking policy making, but is slow to integrate scientific knowledge into regulatory practice.

In conclusion these 3 case studies show that is no ideal or perfect way of responding to the process of convergence but  three cases share a number of important features. They all acknowledge convergence as a relevant trend that has the potential for disrupting the market and the existing governance structures and regulation. This awareness has lead to regulatory adjustments in the case of the US, and a total overhaul of the regulatory landscape in the UK; with a more modest review in Korea currently being implemented. These change processes were strenuous and encountered a lot of internal resistance, which required political leadership and perseverance to succeed.The impact of regulators on the market proves to be strong. In all cases a degree of path dependency can be observed in the market based on the legacy regulatory system. This tends to have a distorting effect on the market, and often leads to incoherent policies across the information delivery chain; e.g. biasing (large) telecom operators in South Korea; strengthening the duopoly, and discriminating between (unregulated) cable and (regulated) telecommunication infrastructure in the US; and strong ties between the regulator and the incumbent telecommunications provider, and favouring economic over societal objectives in the UK.

None of the cases have a fully converged solution. In the UK Ofcom is not fully in charge of content and media policy; whilst the FCC does not have powers over the internet. The South Korean situation is still developing, but the current set up suggests that communications and audiovisual content policy will retain certain of its traditional characteristics. In all cases a general competition authority plays a complementary role.

Typically all cases have chosen to integrate spectrum policy in the mandate of the ‘information’ regulator; as it is considered a key strategic ex ante policy tool with large impact on the ‘information’ market and society as a whole. The traditional technological objectives have been replaced by a more strategic balancing of TES objectives, which requires coherence and consistency in their application. The allocation mechanism of choice is the increasingly sophisticated spectrum auction. Differences occur in the views on the need to ensure technological and service neutrality, and mechanisms on reuse, and extending licenses.

How to respond to convergence will depend on local political and technical factors, but this issue needs to be debated and discussed by countries.

Thank You.

Being a paper delivered at the COMMONWEALTH BROADCASTING SUMMIT 2016  held in lagos 11 - 13 May 2016

Yahaya Maikori - Partner Law Allianz

Ed’s Note – This article was originally published here.