The Technology, Media and Telecommunications Review

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The Technology, media and Telecommunications Review

Editor John P Janka

Law Business Research The Technology, Media and Telecommunications Review

Reproduced with permission from Law Business Research Ltd.

This article was first published in The Technology, Media and Telecommunications Review, 1st Edition (published in October 2010 – editor John P Janka).

For further information please email [email protected] The Technology, Media and Telecommunications Review

Editor John P Janka

Law Business Research Ltd Publisher Gideon Roberton

business development manager Adam Sargent

marketing managers Hannah Thwaites Nick Barette

editorial assistant Nina Nowak

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production editor Joanne Morley

editor-in-chief Callum Campbell

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Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK © 2010 Law Business Research Ltd © Copyright in individual chapters vests with the contributors No photocopying: copyright licences do not apply. The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of October 2010, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected]

ISBN 978-1-907606-09-0

Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: +44 870 897 3239 acknowledgements

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book: Firm names Advokatsko druzhestvo Andreev, Stoyanov & Tsekova in cooperation with Schoenherr

Bahar & Partners

Baker & McKenzie.Wong & Leow

Cleary Gottlieb Steen & Hamilton LLP

edward nathan sonnenbergs

Elvinger, Hoss & Prussen

Georgiades & Mylonas, Advocates & Legal Consultants

Jones Day

Kromann Reumert

Latham & Watkins LLP

Latham & Watkins Gaikokuho Joint Enterprise

Linklaters Advokatbyrå AB

M&M Bomchil

Minter Ellison Lawyers

PÉrez-Llorca

Schoenherr & Asociatii SCA

Schoenherr Attorneys at Law

Seth Dua & Associates

Uría Menéndez – Proença de Carvalho

YOON & YANG LLC contents

Editor’s Preface �� vii John P Janka List of Abbreviations ��ix

Chapter 1 Argentina ��1 Francisco M Gutiérrez and Héctor M Huici Chapter 2 Australia �� 14 Anthony Lloyd, Paul Kallenbach and Paul Schoff Chapter 3 Austria �� 29 Christian Schmelz and Andreas Orator Chapter 4 Bulgaria �� 37 Radoslav Chemshirov Chapter 5 Cyprus �� 48 Yiannos G Georgiades and Rebecca E Howarth Seaberg Chapter 6 Denmark �� 64 Torben Waage, Louise Sofie Falch, Martin Dahl Pedersen and Daniel Herman Røjtburg Chapter 7 European Union �� 76 Maurits J F M Dolmans, Francesco Maria Salerno and Malik Dhanani Chapter 8 France �� 95 Christophe Clarenc Chapter 9 Germany �� 109 Zahra Rahvar Chapter 10 Hong Kong �� 122 Simon Berry and Vi Vi Chow Contents

Chapter 11 India ��136 Atul Dua, Rahul Goel and Anu Monga Chapter 12 Indonesia �� 148 Dewie Pelitawati, Melanie Hadeli and Prihandana Suko P Chapter 13 Italy ��160 Stefano Macchi di Cellere and Giuseppe Mezzapesa Chapter 14 Japan ��172 Hiroki Kobayashi, Tim Johnson and Tomohiko Kamimura Chapter 15 Korea ��186 Wonil Kim and Kwang-Wook Lee Chapter 16 Luxembourg �� 199 Franz Fayot and Linda Funck Chapter 17 Portugal �� 214 Jacinto Moniz de Bettencourt and João de Sousa Assis Chapter 18 Romania �� 225 Adriana Na˘stase and Ionut¸-Alin Sava Chapter 19 Singapore �� 236 Ken Chia Chapter 20 South Africa �� 259 Safiyya Patel Chapter 21 Spain ��271 José Ramón de Hoces Chapter 22 Sweden ��281 Elisabet Lundgren and Emma Linnér Chapter 23 United Kingdom �� 290 Omar Shah and Gail Crawford Chapter 24 United States �� 303 Karen Brinkmann and Jarrett S Taubman

Appendix 1 About the Authors �� 316 Appendix 2 Contributing Law Firms’ contact details �� 333 editor’s preface

The development of industry always outpaces the development of the law. Nowhere is that more true than in the TMT sector, where the digital revolution has spawned new technologies and new services that no lawmaker could have envisioned as little as a decade ago. The Internet has, among other things, opened up new markets, broken down borders, created new educational opportunities, improved the provision of health care and reduced the barriers to entry for new service and content providers. Along the way, the legal constructs once put in place to govern traditional, wireline telecommunications have become outmoded. Commonplace technologies on which we have long relied may no longer predominate in the next decade. ‘Twisted pair’ (copper) is being bypassed in favour of fibre and wireless. Broadcast radio and television is becoming less relevant as consumers rely more and more on the Internet for the delivery of their entertainment, and demand that access wherever they are – at home or on the move. As a result, government policy is evolving to support the deployment of broadband infrastructure, and to facilitate mobile services. Many countries are also making significant investments to get high- speed broadband service deployed to all of their citizens. The booming demand for broadband services is straining the limited spectrum resources that are needed to enable wireless-based broadband services (both terrestrial and satellite). No incumbent user of spectrum is safe as existing spectrum bands are being refarmed; moreover, the digitisation of all forms of communication signals is leading to more efficient use of the spectrum, and facilitating new and creative approaches to sharing radio spectrum. But there is no ‘free lunch’, and national regulators are coming under increasing pressure to capture some of the value associated with the spectrum bands that they are opening for these new purposes. The broadband revolution frees consumers from their former reliance on a few newspapers, TV stations and radio stations for their news and information. But these ‘gatekeepers’ have not entirely been eliminated – they have moved further up the distribution chain as national governments and application service providers seek to constrain access to certain content, whether by blocking it entirely, or by prioritising one source over another.

vii Editor’s Preface

Personal information is being collected, stored and mined in a manner that our forefathers never could have envisaged. Even when we do not volunteer that information through a social networking site, virtually every Internet access and wireless device we use knows where we are, and tracks what we do. Such personal information is being used to target products and services to us (which may or may not be a good thing), but also can be used in a manner that virtually eliminates any expectation of privacy. While the marketing opportunities and social benefits can be terrific, the chances for abuse (particularly in the case of children) and the risk of security breaches are greater than ever. The goal of the first edition of The Technology, Media and Telecommunications Review is to provide an overview of the legal constructs that govern these types of issues in 24 jurisdictions. The authors cannot exhaustively discuss every one of these topics in the following articles, but we do hope this book serves as a valuable starting point as you explore these issues. We welcome your suggestions for future editions.

John P Janka Latham & Watkins LLP Washington, DC October 2010

viii LIST OF ABBREVIATIONS

3G Third-generation (technology) 4G Fourth-generation (technology) ADSL Asymmetric digital subscriber line BWA Broadband wireless access CATV Cable TV CDMA Code division multiple access DAB Digital audio broadcasting DDoS Distributed denial-of-service DoS Denial-of-service DSL Digital subscriber line DTH Direct-to-home DTTV Digital terrestrial TV DVB Digital video broadcast DVB-H Digital video broadcast – handheld DVB-T Digital video broadcast – terrestrial ECN Electronic communications network ECS Electronic communications service EDGE Enhanced data rates for GSM evolution FTNS Fixed telecommunications network services FTTC Fibre to the curb FTTH Fibre to the home FTTN Fibre to the node FTTx Fibre to the x FWA Fixed wireless access GSM Global system for mobile communications HDTV High-definition television HITS Headend in the sky HSPA High-speed packet access ICT Information and communications technology IPTV Internet protocol television ICP Internet content provider

ix List of Abbreviations

ISP Internet service provider LAN Local area network LTE Long Term Evolution (a next-generation 3G and 4G technology for both GSM and CDMA cellular carriers) MMS Multimedia messaging service MMDS Multichannel multipoint distribution service MSO Multi-system operators MVNO Mobile virtual network operator MWA Mobile wireless access NGA Next-generation access NIC Network information centre NRA National regulatory authority PNETS Public non-exclusive telecommunications service PSTN Public switched telephone network RF Radio frequency SMS Short message service STD–PCOs Subscriber trunk dialling–public call offices UASL Unified access services licence UHF Ultra-high frequency UWB Ultra-wideband UMTS Universal mobile telecommunications service USO Universal service obligation VDSL Very high speed digital subscriber line VHF Very high frequency VOD Video on demand VoB Voice over broadband VoIP Voice over Internet protocol WiMAX Worldwide interoperability for microwave access

Chapter 8

France

Christophe Clarenc*

I INTRODUCTION

The TMT sectors in France are characterised by the interactions of mandatory provisions originating from many sources. Indeed, in addition to statutes and regulatory texts, four specialist independent administrative authorities render decisions and opinions that constitute the regulatory framework for these sectors. The French competition Authority also renders decisions and opinions that may have a structural impact on these sectors. 2009 and 2010 (beginning) have not been marked by any major institutional changes in this regard. The regulatory framework applicable to TMT sectors is made up of rights and obligations. For instance, between 2009 and early 2010, the fourth 3G UMTS licence was allocated and the duration of the exclusivities in TMT sectors was limited. Incentives can also result from governmental measures. For example, a national ultrafast broadband programme was launched in August 2010 in order to give each French citizen access to ultrafast broadband by 2025.

II REGULATION i Regulators of the TMT sectors There are four specialist authorities (independent administrative authorities or ‘IAAs’) involved in the regulation of technology, media and telecommunications in France: a The electronic communications and Postal regulatory authority (‘ARCEP’) oversees the electronic communications and postal services sector. It ensures the implementation of the universal service, imposes requirements upon operators

* Christophe Clarenc is a partner at Latham & Watkins LLP. This chapter was written with the contributions of IT and IP partners Myria Saarinen and Jean-Luc Juhan and of associates Renaud Christol and Anjuna Crespin.

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that exert a significant influence in the context of market analyses, participates in defining the regulatory framework, allocates finite resources (radio frequencies and numbers), sanctions, resolves disputes and delivers authorisations for postal activities. b The Superior Audio-visual Council (‘the CSA’) is responsible for the audio-visual sector. The CSA sets rules on broadcasting content and allocates frequencies by granting licences to radio and television operators. It also settles disputes that may arise between TV channels and their distributors, and is empowered to impose sanctions on operators in case of breach of specific regulations c The National Commission on Computing and Liberty (‘the CNIL’) ensures the protection of personal data. Automatic personal data processing systems must be declared to the CNIL. The CNIL also supervises compliance with the law, by inspecting IT systems and applications, and is empowered to pronounce measures that range from warnings to sanctions. d The High Authority for the Distribution of Works and the Protection of Copyright on the Internet (‘HADOPI’) is in charge of protecting intellectual property rights over works of art and literature on the Internet, and was established in 2009 (see Section III, iii ).

These four authorities may deliver opinions upon request by the government, Parliament or other independent administrative authorities such as the French competition Authority (‘the FCA’) (except for the HADOPI). Alongside these specialist authorities, the FCA’s decisions have a structural impact on the TMT sectors. ii Main sources of law in the TMT sectors The TMT sectors are regulated by various mandatory provisions arising mainly from statutes, regulatory texts and the decisions of the IAAs. It should be emphasised that the relevant statutes result to a great extent from the transposition into French law of European Union law.

Telecommunications sector The Post and electronic communications code (‘CPCE’) is the main statute for the telecommunications sector. This code was created by the Telecoms Law, the main purpose of which was to open the sector to full competition. The Telecoms Package was transposed into French law through the adoption of Law no. 2003-1365 on telecommunications public service obligations and France Telecom of 31 December 2003, Law No. 2004-575 on confidence in the digital economy of 21 June 2004 and Law No. 2004-669 on electronic communication and audio-visual communications services of 9 July 2004. Several subsequent laws further enhanced the development of competition in the telecommunications sector: Law No. 2008-3 of 3 January 2008 providing for a stricter regulation of relations between mobile phone operators and consumers and Law No.

Law No. 96-659 of 26 July 1996. EU Directives adopted in 2002.

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2008-776 of 4 August 2008 providing for the expansion of the optical fibre network in France.

Media sector The main statutes in the media sector are Law No. 86-67 of 30 September 1986 on the freedom to communicate for the media sector, as amended, inter alia, by Law No. 2000‑719 of 1 August 2000, Law No. 004-669 on electronic communication and audio- visual communications services of 9 July 2004 and Law No. 2007-309 of 5 March 2007 on the television of the future, which organises the switch from analogue to digital television, as required by the eU Directives issued in 2002. Law no. 2009-1572 of 17 December 2009 on the reduction of the digital divide also contains provisions in connection with the telecommunications and media sectors.

Internet regulation Law No. 2004-575 on the confidence in the digital economy, which in addition to the 2002 Directives, also implements the EU Directive on electronic commerce of 8 June 2006 regulates IP-based services (ISPs and e-commerce). Alongside this, Law No. 2009- 669 of 12 June 2009 on theft and piracy and Law No. 2006-961 of 1 August 2006 on intellectual property rights in the information society applies to intellectual property issues in the Internet sector.

Main statute for protection of personal data Law No. 78-17 of 6 January 1978, as amended by Law No. 2004-801 of 6 August 2004 implementing EU Data Protection Directive and by the Law of 21 June 2004, contains regulations on personal data. iii Investment and ownership restrictions Investment in TMT sectors in France could be concerned by the general regulation of foreign investments made in strategic sectors. In addition, specific ownership restrictions apply to the media sector.

General regulation of foreign investments According to Articles L151-1 et seq. of the French Monetary and Financial Code, when a foreign (EU or non-EU) investment is made in a strategic sector (such as security, public defence, cryptology or interception of correspondence), the investor must submit a formal application file to the French Ministry of Economy for prior authorisation. Any transaction concluded without prior authorisation is null and void, and criminal sanctions (imprisonment of five years and a fine amounting to twice the amount of the transaction) are also applicable.

2000/31/EC. 95/46/EC.

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Specific ownership restrictions applicable to the media sector French regulations provide for media ownership restrictions in order to preserve media pluralism and competition. In particular, any single individual or legal entity cannot hold, directly or indirectly, more than 49 per cent of the capital or the voting rights of a company that has an authorisation to provide a national terrestrial television service where the average audience for television services (either digital or analogue) exceeds 8 per cent. In addition, any single individual or legal entity that already holds a national terrestrial television service where the average audience for this service exceeds 8 per cent may not, directly or indirectly, hold more than 33 per cent of the capital or voting rights of a company that has an authorisation to provide a local terrestrial television service. Further, unless otherwise agreed in international agreements to which France is a party, any foreigner may not acquire shares of capital of a company holding a licence for a radio or television service in France and which uses radioelectrical frequencies if this acquisition has the effect of raising (directly or indirectly) the share of capital or voting rights owned by foreigners to more than 20 per cent. This provision does not apply to publishers with less than 80 per cent capital or voting rights being held by public radio broadcasters belonging to Council of Europe Member States, or with less than 20 per cent being owned by one of the public companies mentioned at Article 44 of the Law of 30 September 1986. Specific rules restricting cross-media ownership also apply. iv Merger control regulations French general merger control framework applies to the TMT sectors, without prejudice to the aforementioned ownership restrictions and to specific provision for the media sector.

French general merger control framework A merger or an acquisition (this includes the constitution of a full-function joint venture) must be notified to the FCA (which has full responsibility over merger control cases since 2 March 2009) if the following three cumulative conditions are met: a aggregate worldwide turnover of all the parties to the concentration exceeds €150 million; b turnover in France of each of at least two parties concerned exceeds €50 million; and c the transaction does not meet the EC Merger Regulation thresholds.

The examination process by the FCA takes place in two phases: a Phase I (taking up to 40 working days): the FCA has 25 working days from the date on which a complete notification is received to examine the transaction. When remedies are proposed to the FCA, this period is extended by up to 15 working days. At the end of this period, the FCA can clear the transaction with

Articles 39-I and 39-III of the Law of 30 September 1986. Article 40 of the Law of 30 September 1986. Articles 41-1 to 41-2-1 of the Law of 30 September 1986.

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or without remedies or proceed to an in-depth investigation. In the absence of any decision; the transaction is tacitly cleared. b Phase II (taking between 65 and 85 working days): if serious doubts remain as to the competitive impact of the transaction, the FCA proceeds with an in-depth investigation. During this phase, if the transaction concerns a regulated area, the FCA shall request a non-bidding opinion from the relevant regulator (e.g. the ARCEP or the CSA). At the end of Phase II, the FCA can clear the transaction, with or without remedies, or prohibit the transaction.

The decision of the FCA may be challenged before the French Supreme Administrative Court, the Conseil d’État.

Specific provision for the media sector Any modification on the capital of companies authorised by the CSA to broadcast TV or radio services on an Hertz-based frequency is subject to the approval of the CSA.

III INTERNET and IP-BASED SERVICES i Internet and Internet protocol regulation As regards the aDSL network, and pursuant to local loop unbundling, alternative operators must be provided with direct access to the copper pair infrastructure of France Télécom, the historical operator. Therefore, as with traditional fixed telephony, DSL networks are subject to asymmetrical regulation. As regards services, ISPs must file a declaration with the ARCEP prior to commencing operations. ii Universal broadband service According to ARCEP, at the end of 2009 there were 19.4 million high-speed broadband subscriptions, among which 18.5 million were ADSL subscriptions in French territory. The next step is the development of an ultrafast fibre-optic broadband network (‘FFTx’). To this end, ARCEP granted alternative operators access to France Telecom civil engineering infrastructures by regulating the access conditions. It is now further developing its regulatory framework for efficient deployment of the FFTx infrastructures throughout the country. After a series of public consultations in 2009 and 2010, it set the framework for operators to deploy and share the last mile of fibre networks and, notably, indoor networks. In addition, in august 2010, the government launched the national ‘ultrafast broadband’ programme, the aim of which is for ultrafast fibre-optic broadband infrastructure to cover the entire country. This programme, which the FCA endorsed in December 2009, will be partially financed by a national loan.

Article 42-3 of the Law of 30 September 1986. Articles L33 and L33-1 of the CPCE.

99 France iii Content regulation and protection Network neutrality is a growing policy concern in France (see Section VII, infra, for further developments). Pursuant to the Law of 21 June 2004, ISPs have a purely technical role and they do not have the general obligation to review the content that they transmit or store. Nevertheless, when informed of unlawful information or activity, they must take prompt action to withdraw the relevant content, failing which their civil liability may be sought (see Section VII, infra). Since 2009, HADOPI has been competent to address theft and piracy matters. It intervenes when requested by regularly constituted bodies for professional defence who are entitled to institute legal proceedings in order to defend the interests entrusted to them under their statutes (e.g., SACEM), or by the public prosecutor. After several formal notices to an offender, the procedure may result in a request to the ISP to suspend the offender’s Internet connection for anywhere between two months to one year. iv National security Law No. 91-646 of 10 July 1991 concerning the secrecy of electronic communications provides that the French Prime Minister may exceptionally authorise, for a maximum period of four months (renewable only upon a new decision), the interception of electronic communications in order to collect information relating to the national defence or the safeguarding of elements that are key to France’s scientific or economic capacity.

IV SPECTRUM POLICY i Development The management of the entire French radio frequency spectrum is entrusted to a state agency, the national Frequencies agency (ANFR). It apportions the available radio spectrum, whose allocation is administered by governmental administrations (e.g., civil aviation, defence, space, interior) and independent authorities (ARCEP and the CSA). ARCEP issues general authorisations for the use of radio frequencies (‘RFs’) for public networks, audio-visual carriage networks, independent networks and video reporting links. Articles 28 to 32 of the Law of 30 September 1986 determine the CSA’s allocation procedures. as for private television and private radio broadcasting on hertz-based terrestrial frequencies, analogue and digital licences are granted by the CSA following a call for applications. Public television and radio channels are authorised without a call for applications. Authorisations granted cannot exceed 10 years. Broadcasting services that are not subject to CSA’s authorisation are nevertheless subject to a standard agreement or a declaration regime.10

10 Articles 33 to 34-5 of the Law of 30 September 1986.

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Development of digital terrestrial television and release of the digital dividend French spectrum policy is currently primarily concerns the development of DTTV and the digital dividend. The Law of 5 March 2007 includes a coverage objective of 95 per cent of the population by the end of 2011 (the switch-off date of analogue terrestrial television). By the end of 2009, 89 per cent of the French metropolitan population could receive DTT according to the CSA. The digital switchover will free up a large amount of spectrum as a result of the superior transmission efficiency of digital technology, ‘the digital dividend’. On 22 December 2008, pursuant to the Law of 5 March 2007, which provides for the reuse of digital dividend frequencies to be planned under a national framework, the French Prime Minister issued orders formalising the government decisions on the national schemes relating to the end of analogue broadcasting (see Section V, i , infra) and the allocation of digital dividend: a allocation to the ARCEP of the entire 790–862MHz sub-band for mobile services as of 1 December 2011; b densification of the use of the 470–790MHz band for the deployment and growth of DTT; and c allocation of band III (174–220MHz, currently used by the Canal Plus analogue network) for exclusive use by digital sound broadcasting.

At the european level, the commission adopted a communication11 and a Recommendation12 in order to facilitate the release of the digital dividend in the European Union and to transform the digital dividend into social benefits and economic growth. ii Flexible spectrum use The trend towards greater flexibility in spectrum use is facilitated in France by the ability for operators to trade frequency licences, as introduced by the Law 9 June 2004.13 The general terms of spectrum licence trading were defined by Decree No. 2006-1016 of 11 August 2006, and the list of frequency bands whose licences could be traded was laid down by a ministerial order of 11 August 2006. A frequency database that provides information regarding the terms for spectrum trading in the different frequency brands open in the secondary market is publicly accessible.14 The spectrum licence holder may transfer all of its rights and obligations to a third party for the entire remainder of the licence (full transfer) or only a portion of its rights and obligations contained in the licence (e.g., geographical region or frequencies). Transfer of frequency licences is subject either to prior approval of ARCEP15 or to notification to ARCEP, which may refuse the assignment under certain circumstances.16

11 COM(2009)586/2. 12 C(2009)8287/2. 13 Article L42-3 of the CPCE. 14 www.arcep.fr/index.php?id=8977. 15 Article R20-44-9-2 of the CPCE. 16 Article R20-44-9-2 of the CPCE.

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Another option available for operators is spectrum leasing, whereby the licence holder makes frequencies fully or partially available for a third party to operate. Unlike in a sale, the original licence holder remains entirely responsible for complying with the obligations attached to the frequency licence. All frequency-leasing operations require the prior approval of ARCEP. iii Broadband and next-generation mobile spectrum use Three 3G (UMTS) licences were awarded to Orange France and Société Française du Radiotéléphone (SFR) on 18 July 2001 and to Bouygues Telecom on 3 December 2002. The fourth 3G mobile licence was awarded to Free Mobile on 17 December 2009 (see Section VII, infra). Furthermore, on 18 May 2010 ARCEP awarded the two remaining blocks of available 3G spectrum in the 2.1GHz band (5MHz block and 4.8MHz block), respectively to SFR and to Orange France, for a total sum of €582 million.17 SFR and Orange have committed to improve hosting conditions for MVNO. The next stage is the allocation of spectrum in the 800MHz and 2.6GHz bands, for the deployment of ultra high-speed 4G mobile networks. The ARCEP launched two public consultations on 5 March 2009 and 27 July 2010, respectively. The authority plans to launch the allocation procedures by the end of 2010 and to award the licences to use these two frequency bands between spring and early summer 2011. iv Spectrum auctions and fees Spectrum auctions in case of scare resources Pursuant to Article L42-2 of the CPCE, as amended by the Law of 17 December 2009, when scarce resources such as RFs are at stake, the ARCEP may decide to limit the number of licences, either through a call for applications or by an auction. The government sets the terms and conditions governing these licensing selection procedures, and until now, such proceedings have always been in the form of calls for applications (see Section IV, iii and the allocation of RFs for UMTS).

Fees Depending on their size and their turnover, electronic communication operators are subject to different types and levels of fees.18 If an operator’s licence only covers one region in France or its overseas regions, the fee is reduced by half. In addition to these fees and pursuant to Articles R20-31 to R20-44 of the CPCE, licensed operators contribute to the financing of the universal services.

17 Decision No. 2010-0581. 18 Article 45 of the Law of Finance of 1987 as amended.

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V MEDIA i Digital switchover As previously indicated (see Section IV, i ), the digital switchover is planned to be completed by the end of 2011. According to the government digital technology should be free of charge and accessible to everyone. As a consequence, financial aid has been released to help those who are located in ‘zones blanches’19 and those who cannot afford switching costs (the costs of a new antenna and of a decoder). As regards pay-DTT, the CSA launched a call for applications to transmit pay- DTT on the country’s r3 digital terrestrial television multiplex in July 2010.20 It is thought that the allocation of new pay-DTT channels will boost the attractiveness of this service. The CSA should shortly launch calls for applications for two more pay- DTT channels. Alongside this, the Law of 9 July 2004 on electronic communications and audio- visual communication services provides a legal framework for digital terrestrial radio. The CSA launched a public consultation on 23 November 2009 relating to the deployment of digital terrestrial radio, which should be launched before the end of 2010 in three cities: Paris, Marseille and Nice. In addition, on 29 June 2010, the government launched a policy on the future of digital radio. ii Internet-delivered video content Internet video distribution refers to IPTV services, which can be classified into the three following main categories: live television, time-shifted programming and VOD. IPTV services were used by 26.7 per cent of households in 2009 and the number of users is growing steadily. For customers who cannot afford triple-play offers, access to video content is limited to the content of free channels (analogue and DTTV channels). The regulatory framework for ‘social’ offers set by the Law of 4 August 2008 is indeed limited to mobile telephony offers, triple-play offers being thus outside of its scope. However, pursuant to Article 25 of Law of 17 December 2009, the government was asked to submit a proposal for a social Internet access subscription to Parliament before July 2010. In January 2010, the Prime Minister asked willing ISPs to think about a social triple-play offer amounting to €20 and gave the Minister for Industry the task of taking all necessary steps to modify the CPCE for this purpose. iii Globalisation and foreign investment The aforementioned restrictions with respect to media ownership and foreign investments have not been modified in response to the globalisation of media companies, and the operators active in the French media sector are still mainly French companies. However, the evolution of media consumption habits, and in particular the changes induced by the

19 Areas not served by a mobile or Internet network. 20 Decision No. 2010-569 of 20 July 2010.

103 France development of Internet-connected mobile devices that enable in particular to listen to music, read books, watch movies and TV programmes, affects the French media sector, and are taken into consideration by the operators of this sector. iv Mobile services Mobile personal television was initiated by the Law of 5 March 2007. This new video broadcasting device has since suffered from substantial delays due to disagreements between operators and content providers on the applicable economic model and on how to finance the deployment of a new network. Nevertheless, on 8 April 2010, the CSA delivered authorisations to 16 channels (13 private channels selected by the cSA after the call for applications launched on 6 november 2007, together with three public channels selected by the government) for the broadcasting of personal mobile television services. On 22 April 2010, TDF (TéléDiffusion de France) and the operator Virgin Mobile signed an agreement under which TDF committed to developing the new network with up to a 50 per cent coverage of the ‘outdoor’ population and 30 per cent of the ‘indoor’ population, with Virgin Mobile paying TDF a monthly per-customer fee. The launch of a commercial offer is expected in the second half of 2011.

VI SECURITY i Privacy and consumer protection The collection and future processing of personal data is subject to several cumulative conditions, which include information, consent and legitimate purpose, and – as a matter of principle – no transfer outside the EU. Any operator that determines the purposes and the manner in which personal data are processed is considered a ‘data controller’, and therefore, needs to file a prior declaration of such processing to the CNIL. According to the CNIL, IP addresses are considered as personal data. However, as French case law has not decided on the issue,21 a legal proposal is currently being examined by Parliament to qualify IP addresses as such. In addition to these general rules applicable to the protection of personal data, the CPCE provides specific rules pursuant to which operators must delete or preserve the anonymity of any traffic data relating to a communication as soon as it is complete;22 however, exceptions are provided, in particular for the prevention of terrorism and in the pursuit of criminal offences. French e-consumers benefit from consumer law provisions and from specific regulations. In particular, they are protected against unsolicited communications (such as spam) insofar as their consent is required prior to the use of their personal data for

21 Supreme Court, criminal section, 13 January 2009 in a case opposing the SACEM to a person suspected of piracy. 22 See Articles L34‑1 and D98‑5 of the CPCE.

104 France commercial exploitation.23 Moreover, consumers must be provided with valid means by which they may effectively request that such unsolicited communications cease. Data used for the purpose of location identification are also to be considered as personal data in the meaning of the Law of 6 January 1978. During the past year, the CNIL has taken decisions on a statistical measure of advertising effects based on locational identification of smartphones, ‘pay-as-you-drive’ systems, anti-theft devices, Google Latitude and Google Street View. Two conditions are usually required: the individual’s knowledge and consent. ii Protection for children Any person under 18 is considered as a child under French law. Unlike in the US, there is no specific statute governing the protection of children online. In general terms, the Law of 9 July 2004 provides that an ISP should inform subscribers where there is a technical means of restricting access to selected services. As for privacy, children’s online rights are protected in the same way of those of adults (see supra). According to CNIL practice, collecting children’s personal data is allowed only with prior authorisation from their parents and if clear information is provided to the child. Yet, the webmaster of a website to which a child connects is still allowed to collect his or her age and e-mail address to send newsletters. In addition, provisions aimed at protecting children against activities or products such as pornography, gaming or alcohol are enshrined in criminal law and in a range of sectoral legislation. In order to increase the efficiency of the already existing provisions meant to prevent child pornography, the proposed Law No. 1697 on guidance for police and security performance (‘LOPPSI 2’) suggests that the administrative authorities could order an ISP to cut access to websites displaying images of child abuse. iii Cybersecurity Unauthorised access to automated data processing systems are prohibited by Articles 323‑1 to 323‑7 of the French Penal Code. In addition, with regard to cyber attacks, the LOPPSI 2 proposal would introduce a new offence of online identity theft and would empower police officers, upon juridical authorisation and only for a limited period, to install software in order to observe, collect, record, save and transmit all the content displayed on a computer’s screen. iv Emergency response networks In France, emergency calls are routed to a call centre located in the same geographical area as the caller. In this context, Article D98-8 of the CPCE provides that operators must allow their clients to access, and therefore route their calls, to the emergency services free of charge.

23 Article L34‑5 of the CPCE and Article L121‑20‑5 of the French Consumer Code.

105 France

VII YEAR IN REVIEW

Last year and the beginning of 2010 were characterised by several developments in the telecommunication, media and Internet sectors. i Allocation of the fourth 3G (UMTS) license to Free Mobile On 17 December 2009, ARCEP approved the application of the only candidate, Free Mobile, for the fourth 3G licence24 after an unsuccessful call for applications carried out in 2007 and new procedure launched on 1 August 2009. Free Mobile committed itself to offer wholesale access for MVNOs to its network, and to launch its network commercially within two years for allocation, with at least 90 per cent population coverage within eight years. On 12 January 2010, ARCEP awarded Free Mobile a licence to use the frequencies to establish and operate a 3G mobile network in Metropolitan France.25 Free Mobile paid €240 million for its block of 5MHz. The allocation of the fourth 3G licence to Free Mobile was challenged by the other operators before the French Administrative Supreme Court and the European Commission. Based on Article 119 of the Law of 4 August 2008 and the guidelines adopted by arceP on 9 april 2009,26 mobile operators signed 3G mobile network sharing agreement, on 11 February 2010. Following the allocation of the fourth 3G licence, the network-sharing agreement was extended to Free Mobile, on 23 July 2010. The agreement should enable full nationwide coverage by the end of 2013. ii iPhone exclusivity The two previous years were marked by a dispute concerning the status of Orange France (France Télécom) as the exclusive mobile network operator and wholesaler for iPhones in France. In 2008, Bouygues Télécom filed a complaint with the FCA, together with an application for interim measures in which it alleged that this exclusivity were anti-competitive. On 17 December 2008, the FCA considered that exclusive rights were likely to restrict competition on the market for mobile telephony services and ordered Apple and Orange France to suspend their contract. On 4 February 2009, the Paris Court of Appeal rejected the appeals lodged by Orange France and Apple. On 16 February 2010, the Supreme Court quashed the judgment of the Paris Court of Appeal. The Supreme Court found that the Court of Appeal should have examined whether the existence of competing terminals for the iPhone – at this time a new entrant on the terminal market – allowed Orange France’s competitors to offer competing services combining mobile services and high-speed Internet mobile services despite the exclusivity. Second, it ruled that the Court of Appeal had incorrectly assessed the efficiency gains derived from the exclusive contract.

24 Decision No. 2009-1067. 25 Decision No. 2010-0043. 26 Decision No. 2009-0328.

106 France

In the meantime, Orange France and Apple have committed to amend part of their exclusive contracts before the FCA. iii Acquisition of TMC and NT1 by TF1 On 26 January 2010, the FCA authorised, subject to various conditions, the acquisition of TMC and NT1 (pay-TV channels of AB Group) by the French broadcaster TF127 after an in-depth examination of the operation. The FCA considered that the operation will serve to strengthen TF1 group’s position in the markets for rights and advertising. To remedy the risks of adverse effects on competition, the TF1 group has undertaken a series of commitments undertaken for a period of five years before the FCA. For example, TF1 has undertaken to: a renounce to any kind of cross-promotion on TF1 of the programmes shown on the acquired stations; b avoid any type of coupling, subordination, advantage or compensation between the advertising airtime on TF1 and those on the TMC and NT1 stations; and c market the advertising airtime on the TMC and NT1 stations independently not by the same company as that which markets the advertising on TF1.

The appeal against the decision brought by TV channel M6 before the Conseil d’État has been rejected. iv TV content access exclusivity offers by ISPs On 13 July 2010, the Supreme Court ruled that Orange France’s policy of reserving its Orange Sports channel to its aDSL subscribers does not constitute a breach of consumer law. The Supreme Court found that this ‘linked sale’ did not constitute an unfair commercial practice as consumers are still able to choose their ISPs ‘in knowledge of the facts’. On 7 July 2009, the FCA published an opinion on TV content access exclusivity offers by ISPs where it expressed concern about the double-exclusivity economic model claimed by Orange. v Media chronology The organisation of media chronology in France has recently been modified by an order dated 9 July 2009, extended to the entire sector. New exclusivity windows have been opened for news media: pay-per-film, payment of a subscription or access free of charge via the Internet or on-demand audio-visual services. vi Network neutrality In april 2010, arceP launched a public consultation with the intention of then publishing its first guidelines on Internet and electronic communications network neutrality. ARCEP states that there is an urgent need to set out an official principle of neutrality for network management with respect to what networks carry (content, services, applications or usage). Further, the government suggested, in a report submitted

27 Decision No. 10-DCC-11.

107 France to Parliament in July 2010, that ARCEP’s powers be extended in matters of relations between operators as well as the creation of interconnection tariffs. The publication of ARCEP’s guidelines (initially scheduled for July 2010) and more legislative developments on this issue are thus to be expected in the coming year. vii Case law on the control of Internet content The Paris Court of Appeal ruled on 14 April 2010 that content-sharing service providers such as Dailymotion are not to be considered as online publishers but as mere ISPs. However, online auction websites such as eBay may be considered, depending on the facts, as online publishers28 or as hosting service providers29 and their civil liability could be more easily engaged. Further, ISPs may have to cut access to certain content upon a court order. In a recent case of 6 August 2010, brought by the French online gaming regulatory authority against seven major ISPs, the Paris Civil Court ordered the ISPs to prevent access to an unlicensed online gambling website based in Gibraltar. The judgment was appealed and further developments are expected (see Section VI, i , supra).

VIII CONCLUSIONS and OUTLOOK

An EU telecoms reform package was adopted at the end of 2009, amending the 2002 Telecom Package. Regulation No. 1211/2009 of 25 November 2009 created a European Body of Telecoms Regulators (BEREC), which oversees the work of the 27 national regulators in order to ensure fair competition and greater consistency of regulation in the telecoms markets. Directive No. 2009/140/EC and Directive No. 2009/136/EC amend the five Directives of the 2002 Telecom Package. The european commission is given new powers regarding competition remedies for telecoms market. Regarding Internet and IP-based services, the Directives establish a citizens’ right relating to Internet access and the principle of Internet neutrality. Furthermore, other provisions aim at accelerating broadband access for all european citizens and encouraging competition and investment in the next-generation access networks. As for privacy, the Directives strengthen consumer protection against personal data breaches and spam (most notably, the use of cookies is regulated) and increase the requirements with regard to information delivered to consumers by service providers. In terms of policy spectrum, the Directives increase technology and service flexibility in spectrum use and favour the development of an EU market for RF where RF would be tradeable. Transposition measures to implement the package are to be adopted in France in autumn 2010. In parallel with this reform, a Directive reforming the GSM Directive of 1987 to free airwaves for 3G and other mobile services has been adopted.

28 Paris Commercial Court, 30 June 2008; Reims Court of Appeal, 23 July 2010. 29 Paris Civil Court, 13 May 2009.

108 Chapter 9

Germany

Zahra Rahvar *

I INTRODUCTION

ICT contributes more to wealth creation in Germany than the traditional technologies of automotive and mechanical engineering. With an annual business volume of approximately €140 billion, the ICT sector is one of the largest economic sectors in Germany. More than 800,000 people are employed in the sector itself, and an additional 650,000 ICT specialists are employed in user sectors. It has become a driving force in Germany’s economy and, naturally, the legislator has to adjust the legal framework of media law accordingly. By focusing on key issues such as convergence, mobility and networking, the government has tried to advance the information society through targeted policies to modernise legal and technical frameworks and to promote research and market-oriented development. As part of this overall effort, the government adopted a programme entitled ‘Information Society Germany 2010’ (‘iD2010’). The iD2010 programme is specifically tailored to the needs of the ICT sector. Moreover, the question as to whether media convergence as a technological phenomenon inevitably will lead to a convergence in media law is the subject of much lively debate in the political and academic fields; the discussion is ongoing in Germany, with no clear trend apparent. The area of application of media law needs to be clarified, in light of the appearance of new and increasingly interconnected services along the convergence trend, and services need to be unambiguously and distinctly assigned to their suitable legal frameworks.

* Zahra Rahvar is an associate at Latham & Watkins LLP. See www.bmwi.de/English/Navigation/Technology-policy/the-information-society.html. The government tries to support the process of convergence by adapting the legislative framework for telecommunications and media services at the national and European levels, by implementing a frequency policy geared to more efficiency and flexibility and by participating in joint initiatives.

109 Germany

II REGULATION i General regulatory framework Due to the federal policy of considering media as a ‘fourth division’ of power and a tendency to deregulate and decentralise, there is no single media authority in Germany. All television and radio broadcasters are subject to state control. Public-service broadcasters are supervised by internal committees, and content-related supervision is carried out by the respective broadcasting council, whose administrative board supervises all management decisions made by the director. Private broadcasters, however, are subject to external supervision. The competent authority is the state media authority of each German state, whose responsibilities – apart from the supervision itself – includes granting authorisation according to Article 22, Paragraph 1 of the Inter-State Broadcasting Treaty (‘the RStV’), and assigning transmission capacities. Private and public television broadcasting in Germany is governed by the 1987 RStV, which outlines the side-by-side existence of public and commercial broadcasting. The provisions of the RStV have been modified 13 times. Further legal sources, at a federal level, are various inter-state treaties, especially on the Protection of Human Dignity and the Protection of Minors in Broadcasting and in Telemedia (‘the JMStV’) and on European-level Directives (e.g., the Television without Frontiers’ Directive, treaties and conventions). In addition, there are individual state media laws. The state media authorities are responsible for general access regulation, (e.g., access to broadband services and other platforms) as well as additional applications like control systems and navigators. They also have a wide range of powers with which to supervise broadcasters, such as warnings, prohibition or withdrawal and revocation of licences. All private broadcasters must be registered. Commercial broadcasters require a licence for the purpose of providing broadcasting services. According to Article 20, Paragraph 2 of the RStV, the provider of an electronic information and communications service – if it is to be categorised as broadcasting – requires a licence. If the competent state media authority determines that this is the case, the provider, after being notified of this determination, must submit a licence application within three months to provide the relevant information in such a manner that the service can be categorised as broadcasting. If an enterprise wishes to obtain a licence as a national broadcasting service provider, it needs to be a natural or legal person who: a has unlimited legal capacity; b has not lost the ability to serve in a public capacity as a result of a legal ruling;

Several states have joint media authorities, such as Berlin and Brandenburg as well as Hamburg and Schleswig-Holstein. Article 53 of the RStV. Article 38 Paragraph 2 of the RStV. Article 20a, Paragraph 1 of the RStV.

110 Germany c has its seat of residence or seat in Germany, another Member State of the European Union or another state of the European Economic Area (EEA) and can be pursued by court; and d warrants that in providing broadcasting, it will respect the legal provisions and any administrative acts passed thereon.

The state media authorities work together in licensing and supervision as well as in the development of commercial broadcasting in fundamental questions, primarily with a view to the equal treatment of commercial TV and radio broadcasters. Their tasks are laid down in the ‘Basic Principles for the Collaboration of the Association of State Media Authorities in the Federal Republic of Germany’ of 20 January 2004 (‘the ALM Statute’). The main focus of the collaboration of the state media authorities is the promotion of programming diversity and thus freedom of information and opinion in commercial television and radio. This involves, in addition to controlling media power by means of licensing limitations and licence monitoring, also the promotion of the media literacy of viewers and listeners. The state media authorities are also responsible for compliance of commercial TV and radio broadcasters with basic programming principles. They also oversee the observance of regulations on advertising limitations or the protection of minors. The common tasks are carried out by the Regulatory Affairs Commission, the Directors’ Conference of the State Media Authorities, the Committee Chairpersons’ Conference, the Commission for the Protection of Minors in the Media and the Commission on Concentration in the Media (‘the KEK’). The compliance of telecommunications companies with the Telecommunications Act is monitored by the Federal Network Agency (‘the BNetzA’).. The Agency ensures the liberalisation and deregulation of the telecommunications, postal and energy markets through non-discriminatory access and efficient use-of-system charges. It is responsible, inter alia, for securing efficient and interference-free use of frequencies and protecting public safety interests. Apart from regulation, the BNetzA performs a number of other tasks related to the telecommunications market such as administering frequencies and telephone numbers, detecting radio interference and offering advice to citizens on new regulations and their implications. German telecommunications law has developed in accordance with the European Regulations. The 2002 Telecoms Package caused fundamental changes to the previous German telecommunications law and was implemented into the German Telecommunications Act (‘the TKG’) on 22 June 2004. Since then, minor changes have been implemented (e.g., on data retention). The implementation of the 2009 Telecoms Package into German law will likely take place in 2011. ii Ownership restrictions German law generally makes no distinction between Germans and foreign nationals regarding investment or the establishment of companies; however, it provides for certain restrictions on foreign capital and investment. The German Federal Ministry of Economics and Technology may prohibit certain acts that might interfere with German interests. Inter alia, these interests are the general security of Germany or the acquisition

111 Germany of a company or parts of a company that is vital to the security of Germany according to Section 7, Paragraph 2 of the Foreign Trade Law. Telecommunications services are deemed essential for Germany’s security, and the German Telecommunications Act imposes certain obligations in that regard on telecommunications providers. Agreements relating to telecommunications services can be negotiated freely (e.g., payment terms, currency and billing) with business or carrier customers if no party has significant market power (in which case, price terms are regulated by the TKG and a provider with significant market power is not able to choose its customers freely). The TKG also provides for mandatory minimum liability for telecommunication providers. The provider’s liability for a publicly available telecommunications service can be capped at compensation for damages in the amount of €12,500 with regard to an individual end-user if the provider’s infringing act was not wilful. The total liability with regard to end-users for a single event can be capped at an amount of €10 million if the provider’s infringing act was not wilful. The Inter-State Broadcasting Treaty contains special ownership control provisions that are designed to ensure media plurality objectives. These rules apply in addition to the general merger control regime and are administered by the KEK. iii Mergers and acquisitions The German merger control provisions are enforced by the Federal Cartel Office (‘BkartA’) in Bonn. The current legislation can be found in Chapter VII of the GWB, which deals with the control of concentrations affecting the German market. The filing of merger notifications in Germany is mandatory if the turnover thresholds according to Section 36, Paragraph 2 of the GWB are met and none of the de minimis exemptions apply. In addition, the completion of a (cleared) merger must also be announced without undue delay (post-completion notice). This, however, is a mere formality. If the statutory conditions for prohibition are fulfilled, the BkartA will prohibit the merger. It also has the power to order the divestment or the disposal of certain assets where a merger has already been completed. Mergers that are subject to merger control may not be completed before either the BkartA has cleared the transaction or the relevant waiting periods of one month (first phase) or four months (first and second phases together) after submission of a complete notification has expired without the BkartA having prohibited the transaction.

article 26 et seq. of the RStV. Two de minimis exemptions apply under the following conditions: i one party to the merger achieved less than €10 million worldwide turnover (in the case of the target including the seller and all its affiliates, provided that the seller controls the target and, in the case of the acquirer, including all its affiliates); or ii the relevant market (which must have been in existence for at least five years) had a total annual value of less than €15 million in the last calendar year (‘de minimis’ market clause). See Getting the deal through: Merger Control 2011, www.gettingthedealthrough.com/books/20/ jurisdictions/11/germany.

112 Germany

For the purpose of notification, the GWB requires, as a minimum, a description of the transaction to be given in the notification, and in addition, sets out the following required information in respect of all participating enterprises: a name; b place of incorporation; c type of business; d turnover of the parties involved (worldwide, in the EU and in Germany); e market shares of the parties in Germany and the basis of its own calculation if the combined market shares amount to 20 per cent or more; and f in the case of an acquisition of shares in another company, information about the shares already held in the target company and the shares to be acquired.

There are no legal deadlines for a notification of a concentration, but notifiable concentrations must not be completed before clearance. Therefore, it is advisable to submit a notification well before the envisaged completion date. It is possible to file a pre-merger notification even prior to the signing of the transactional documents. Parties should also not forget to submit the mandatory post-completion notice to the BkartA, which needs to be filed without ‘undue delay’ following completion of the transaction. In principle, all parties involved in a merger are responsible for filing. In the case of an acquisition of shares or assets, the vendor must also make a notification. In practice, the filing is often done by the acquiring firm also on behalf of all other parties involved. The GWB provides for filing fees payable to the BkartA for merger proceedings. The fees can amount to up to €50,000. Submission of an incorrect or incomplete filing constitutes an administrative offence and can lead to a fine of up to €100,000. The same applies to the failure to submit a post-merger completion notice or in cases of incomplete, incorrect or late notice.10 iv Other sector-specific regulatory issues11 German telecommunications law does not oblige telecommunications services or network providers to apply for a general licence; however, in accordance with the Access Directive, it requires certain providers such as public telecommunications network providers or providers of public telecommunications services to notify the Federal

Ibid. 10 A fine of up to €1 million or, in the case of an undertaking, up to 10 per cent of its total worldwide group turnover in the preceding business year, can be imposed if the notifying par-ties intentionally include or make use of incorrect or incomplete information in the notification with a view to causing the BkartA to refrain from issuing a prohibition decision or from opening a second phase investigation. 11 The German ICT industry generates a sales volume of about €135 billion annually. It has a market share in Europe of 18.9 per cent. It is the second-largest market behind the United Kingdom (19.9 per cent). The sector imported €38.6 billion in 2009, with ICT hardware products making up almost half of the imports. The industry has a workforce of 846,000 employees and about 73 per cent of the German private households have Internet access.

113 Germany

Network Agency when they start to provide the services or the network.12 A notification is not necessary for non-public telecommunications networks or services. Enterprises importing ICT products to Germany must make sure that their goods are CE certified. The CE Mark identifies a product as complying with EU health and safety standards. Depending on the type of product, conformity can be proven by the manufacturer or with the involvement of an authorised body. Manufacturers and importers must be aware that in Germany, software and other ICT products must be modified according to the country’s customs and language.

III INTERNET and IP-BASED SERVICES i Internet and internet protocol regulation Since the German parliament adopted the Telemedia Act (‘the TMG’) on 18 January 2007, all IP-based services are now regulated under this act. The Telemedia Act no longer distinguishes between ‘teleservices’, which were previously covered by the Teleservices Act and ‘media services’, which were previously the subject of the Inter- State Agreement on Media Services. Instead, it combines the two concepts: commercial rules for telemedia are covered in the TMG, while content-related aspects are regulated in a specific section of the Inter-State Broadcasting Treaty (Sections 54 et seq.) and the Inter-State Agreement on Protection of Youth in the Media. Telemedia services are permission-free and generally do not need to be registered. Telecommunications services and telemedia services are mutually exclusive; therefore, telecommunications are excluded from the scope of the Telemedia Act. In reality, the distinction is often difficult to make. In addition, the regulatory structure of telemedia services oscillates somewhere between unregulated press law and the framed supervision the television and radio broadcasters are under. Thus, the state media authorities are also the regulators of telemedia services. ii Universal broadband service Germany currently has good broadband penetration, which compares well against international levels. Over 98 per cent of all German households have the possibility of getting broadband access with transmission rates of at least 384kbit/s. Based on the currently accepted broadband definition of at least 1Mbit/s, penetration amounts to approximately 92 per cent. Well over 70 per cent of households have potential access to transmission rates of at least 2Mbit/s, while some 20 per cent can avail themselves of high-speed Internet access through ADSL connections of up to 50Mbit/s. The federal government, however, intends to give a further boost to the development of the broadband network in Germany, which will be achieved by capitalising on synergies in the construction of infrastructure, using the ‘digital dividend‘, formulating regulation that fosters investment and growth and through financial support. Various initiatives exist at the federal, state and local level – especially the German Broadband Initiative, under which the aim is to have nationwide broadband access no later than the

12 Section 6 of the TKG.

114 Germany end of 2010. A total of 75 per cent of all German households should have high-speed broadband access with transmission rates of at least 50Mb/s by 2014. The government’s goal is to deliver nationwide access to this high-speed broadband as soon as possible.13 The federal government launched an initiative in spring 2010 to encourage innovative projects by promoting pilot schemes, and which supports local authorities that have developed exceptionally innovative solutions. It is hoped that these ‘broadband beacon projects’ will encourage businesses to pursue best-practice solutions. Small and medium-sized telecommunications companies in particular can borrow funds at terms that are in line with market conditions and with adequate risk pricing through Germany’s state-owned development bank’s (‘KfW’) corporate financing programme. In any event, the existing and modified federal and state loan guarantee scheme is generally available to companies in the telecommunications sector to prevent economically desirable broadband projects from failing due to a lack of suitable finance. With these programmes, the federal states or the federal government and federal states together assume up to 90 per cent of the risk of default for project financing. The government’s policy is to actively encourage people to use the Internet and to help them acquire skills in the area of new media by, for example, providing governmental services electronically (‘e-government’), transport and health-care telematics and the digitisation of cultural assets. The ‘white areas’ in rural Germany are shrinking rapidly, partly due to ongoing investment by the network operators. The reduction has also largely been achieved thanks to the host of action programmes offered by the federal states, local authority broadband initiatives in the areas affected and the nationwide activities of associations such as the German Association of Internet Enterprises (eco), the Association of the Providers of Telecommunications and Value-Added Services and the Association of Towns and Municipalities. The Darmstadt Declaration, published after the Third National IT summit in November 2008, examines the main challenges and identifies solutions for high-speed networks in Germany. In order to transmit ever-larger amounts of data, it is considered necessary to expand and upgrade fibre-optic networks and introduce 4G communication technologies. Inexpensive radio broadband connections – particularly those using radio frequencies below 1GHz – are seen as a decisive factor for ensuring coverage in rural regions. Terrestrial transmission in Germany is now exclusively digital after the last analogue transmitters were switched off in 2008. Digital satellite reception also continues to expand; the same applies for cable. But since the original switchover date – in 2010 – could not be met, at present, April 2012 is the new target date.

13 The Federal Ministry of Economics and Technology (BMWi) will further develop its broadband portal www.zukunft-breitband.de. Apart from the Broadband Atlas and best-practice examples, this portal also currently includes checklists for local authorities and information on financial support.

115 Germany iii Content regulation and protection The Federal Network Agency is responsible for the surveillance of broadband network owners to comply with the TKG.14 Currently, no general legal provision of the TKG hinders broadband network owners from actively managing and differentiating between data packages to be sent online. A legal requirement for ‘net neutrality’ can neither be deduced from provisions regarding access15 and fee regulations16 nor from Section 42 of TKG, which governs control of abusive practices. The EU Commission has not yet regulated the issue of ‘net neutrality’. The EU focuses on transparency in the management of the network itself in order to protect consumers. The new EU regulation (Telecommunication Package) states that Member States should ensure consumers are informed in a clear manner before conclusion of the contract and thereafter on a regular basis about any restriction of their access to legitimate content by the provider. Moreover, national regulatory authorities can intervene so that operators have to publish comparable, adequate and up-to-date end-user information on the quality of their services. In Germany, the current legal framework is considered sufficient to secure unimpaired communication via the Internet. So, in the coalition agreement of the governing parties in Germany only a narrow passage can be found on the subject of ‘net neutrality’. It states: ‘We trust that the existing competition ensures neutral data transmission on the Internet and other new media (net neutrality), but [must] carefully monitor the developments and meet if necessary with the objective of maintaining network neutrality’. Therefore, at present, there appears to be no political force in Germany that would drive this issue.17 iv National security The federal government implemented the National Protection Plan for Information Structures (‘NPSI’) based on plans for specific target groups. The aim is to ensure a high level of IT security in the medium and long term. The NPSI addresses all social groups, including citizens and small and medium-sized enterprises. With regard to the latter, the focus is on making them aware of the risks involved in using IT and informing them about the protection mechanisms available. Also, as of 5 December 2007, the Office of Federal Government Commissioner for Information Technology was created. The Commissioner is the central point of contact for the states and the private sector when working with the federal government on IT matters.

14 See Section 126 of the TKG. 15 Sections 16 to 26 of the TKG. 16 Sections 27 et seq. and Sections 39 et seq. of the TKG. 17 Schrey and Frevert, MMR 2010, 596 (599); Spies and Ufer, MMR 2010, 13 (17).

116 Germany

IV SPECTRUM POLICY i Development Originally, frequencies in Germany were used exclusively – with a few exceptions – by Germany’s federal mail service (Deutsche Bundespost). The Law concerning the Restructuring of Posts and Telecommunications was adopted as early as 1989, and this new law created new regulatory provisions for opening up broader competitive opportunities on the telecommunications markets. With the Telecommunications Act of 1996, the monopoly on both network and telephony was also finally abolished and these markets were hence fully liberalised. Today’s development goes hand in hand with the population’s increasing demand for mobile communication services. Not least because of the new technical possibilities opened up by – inter alia – UMTS demand for more bandwidth will continue to rise in line with increasing mobility. Both growing demand and technological innovation call for the availability of adequate frequency spectrum. Because of its type of use and the current state of technology, the frequency spectrum available is still considered a scarce resource. According to the regulatory authority, the Regulatory Authority for Telecommunications and Posts (‘the RegTP’), use of frequencies needs a forward-looking, non-discriminatory and proactive frequency regulation. The ‘digital dividend’ is the frequently used term whenever digitisation results in the freeing up of spectrum. ii Flexible spectrum use The newly amended Telecommunications Act announced in March 2010 takes account of the guidelines laid out by the European Directives (‘Better Regulation’ and ‘Citizens Rights’) and incorporate them into national German law. The amendment ensures the alignment of decision-making policy of the Federal Network Agency on competition and investment-friendly regulatory principles. Providing security for potential investors, the Federal Network Agency will be empowered to provide fundamental regulatory concepts at an early stage and to make binding preliminary specifications in regard to possible regulatory decisions. Also, the Federal Network Agency too can specify the sharing of land and installed facilities. Moreover, additional reporting requirements about infrastructural facilities are planned, the aim being to create a comprehensive list according to their nature, availability and geographical location, and to improve cooperation and ‘spectrum sharing’. Spectrum use should be more efficient and flexible. Tighter sanctions should lead spectrum to be actually used instead of merely maintained. At the same time, portability, trade, leasing and sharing of spectrum will be designed more openly.

117 Germany iii Spectrum auctions and fees Germany held Europe’s first 4G mobile broadband spectrum (radio airwave) auction from mid-April to mid-May 2010. The Federal Network Agency was in charge of the auction, which was the first wireless broadband spectrum auction in Germany for nearly a decade. Four operators18 were allowed to bid for frequencies from the fields at 800MHz, 1.8GHz, 2GHz and 2.6GHz amounting to approximately 360MHz; no new entrants were allowed to bid. The minimum bid price was set at €1.5 million per 5MHz frequency block. After 224 auctions on 27 days in total the auction aggregated a total amount of €4.4 billion for 41 frequency blocks. The 4G auction has set a benchmark for other leading economies in Europe that are also expected to hold spectrum auctions in 2010–11. iv Broadband and next-generation mobile spectrum use Some rural areas of Germany still lack high-speed Internet connections (‘white areas’) and suffer substantial economic disadvantage as a result. As cable installation in those regions is not considered economical, using the spectrum resources made available through digitisation and providing Internet coverage via wireless broadband has become the main objective of the relevant German authorities. Thus, the Federal Network Agency imposed rather strict requirements on the auction purchase of spectrum in 2010. Adequate Internet access has to be supplied ‘level-wise’: thus every successful bidder has had to agree to provide Internet access to communities and cities with no more than 5,000 inhabitants, to those with between 5,000 and 20,000 inhabitants and then to cities with more than 50,000 inhabitants. Further expansion of Internet services will not be allowed before supply to 90 per cent of any ‘level’ has been ensured.

V SECURITY i Privacy and consumer protection In order to better protect the privacy of individuals against intrusions of modern data processing, in a 1983 decision the Federal Constitutional Court developed the notion of individuals’ right to decide how their data are to be used.19 This right means that it is up to each individual to determine what and how much personal information he or she would like to reveal. This right to privacy is an element of the general right to free development of one’s personality, which is protected under Article 2(1) in conjunction with Article 1(1) of the German Constitution. The collection, processing and use of personal data is governed by the German Federal Data Protection Act. Its requirements are partially supplemented by the German Act Against Unfair Competition with regard to certain methods of marketing – particularly by e-mail and SMS – and by the Telemedia Act. The German Federal Data

18 Telefonica O2 Germany GmbH & Co OHG, Deutsche Telekom GmbH, Vodaphone D2 GmbH and Erste MVV Mobilfunk Vermögensverwaltungs-gesellschaft mbH (E-plus). 19 Federal Constitutional Court Decision 65,1 [41].

118 Germany

Protection Act applies mainly to federal public authorities and to non-public entities, such as corporations. Every private organisation is required to inform those persons whose personal data they are storing. However, some exceptions apply; for example, if the data subject is already aware of such storage from other sources, if the data are from publicly accessible sources or if they are to be kept confidential. Bodies responsible for processing data are required to correct information if necessary and to delete or block personal data if unlawfully stored or no longer needed. If a body responsible for processing data harms a data subject by unlawfully or incorrectly collecting, processing or using his or her personal data, and in doing so failed to act with due care, that body is liable for damages. Individuals may request information from public and private organisations about stored data concerning them and the reason for storing these data. Private organisations are also required to indicate whether they regularly transmit these data to others, and if so, to whom. ii Protection for children Youth protection provisions applicable to the Internet can primarily be found in the Inter-State Treaty on the Protection of Human Dignity and the JMStV. The Federal Department for the Media Harmful to Young Persons (‘the BPjM’) is the responsible authority for protecting children and adolescents in Germany from any media that might contain harmful or dangerous contents. This work is authorised by the Youth Protection Law. The types of media monitored include videos, DVDs, computer games and Internet sites. The BPjM can act only on request of other administrative institutions, not on its own initiative. The German Youth Welfare Departments, among others, can file a complaint; once an official request has been filed, the BPjM is obliged to process the complaint. Possible measures in the event of a violation are prohibition from publication, blocking the provider and fines up to €500,000. iii Cybersecurity The parliament passed the Act to Strengthen the Security of Federal Information Technology on 14 August 2009. According to Section 1 of the Act, a Federal Office for Information Security (‘BSI’) will be maintained as a superior federal authority, to be overseen by the Federal Ministry of the Interior. The BSI is responsible for promoting IT security in Germany.20 Due to the complexity of IT problems, the spectrum of tasks facing the BSI is wide-ranging. According to Section 3 of the Act, its tasks include developing criteria, procedures and tools to test and evaluate the security of information technology systems or components and to test and evaluate compliance with IT security standards, and developing technical security standards for federal information technology and for the suitability of information technology contractors in special need of protection. Furthermore, the BSI investigates security risks associated with the use of IT and

20 www.bsi.bund.de.

119 Germany develops preventive security measures, provides information on risks and threats relating to the use of information technology and seeks out appropriate solutions. This work includes IT security testing and assessment of IT systems, including their development, in cooperation with the industry. The BSI is organised in four divisions, one central and three specialised.

VI YEAR IN REVIEW

In the past 18 months, some important court decisions were rendered and legislative changes passed regarding Internet and multimedia law. More than 600 judgments and 500 essays represent an exciting development in this dynamic legal area in Germany. IT contract law was most influenced by the German Federal Supreme Court’s (‘BGH’) decision regarding Section 651 of the BGB (application of sale of goods law)21 with its possible impact on the industry. The fiercely disputed liability of ‘ADMIN-C’ (administrative contact) isnow pending at the BGH. Within the field of competition law, the primary focus has been on spam and amendments of the Unfair Competition Act regarding telephone advertising. The BGH also ruled on the admissibility of ‘Google AdWords’ in three judgments, in which the ECJ ruled that Google does not infringe any trademark rights. In the field of personal rights, the key topics were ‘www.spickmich.de’22 and reporting on criminal offenders in the media, especially in online archives. The aforementioned reform of the legal framework adopted in November 2009 will be of enormous significance to telecommunications law. Also, the broadcasting licence fee debate has been important in German media law in the past 18 months. The issue of ‘flying jurisdiction’ remains one of the most important in Internet-related procedural law.

VII CONCLUSIONS and OUTLOOK

Convergence presents an abundance of challenges for policy-makers, industry and society. Cooperation on a European and global level is vital for most German ICT policy issues, including telecommunication and frequency policies, ICT research, anti- spam measures and consumer, copyright and youth protection in the context of new

21 ‘The provisions of sale of goods law are applicable to a contract dealing with the supply of movable things to be produced or manufactured. Section 442(1) sentence 1 also applies to these contracts if the defect is caused by the material supplied by the customer. To the extent that the movable things to be produced or manufactured are not fungible things, Sections 642, 643, 645, 649 and 650 apply, subject to the proviso that the applicable point of time under sections 446 and 447 takes the place of acceptance.’ This provision serves to implement Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees (OJ L 171, p12). 22 a social online platform with a special feature allowing students to grade their teachers.

120 Germany media. Indeed, it is impossible to separate these international activities from national policy-making. The German parliament has established a committee of inquiry on the topic ‘Internet and the digital society’. The aim of this committee is to work out a legal framework by 2012 designed for the digital society. The framework needs to be flexible enough to tackle the long-term consequences for German society, the economy and the law driven by the ever-increasing Internet penetration. The most relevant topics will be net neutrality, data protection, copyright protection, green IT, net anonymity, e‑government and legal security in electronic commerce. The first presentation of policy recommendations is planned for spring 2011.

121 Chapter 10

Hong Kong

Simon Berry and Vi Vi Chow*

I INTRODUCTION

Hong Kong has one of the most developed telecommunications and Internet services markets in the world. Its legal and regulatory system promotes competitiveness while at the same time striving to enhance and facilitate business investment. In terms of telecommunications, there are in total five mobile network operators, 14 local fixed network operators, and 318 external fixed telecommunications services providers serving Hong Kong’s population of slightly over 7 million in a land area of approximately 1,000 square kilometres. The household fixed line penetration rate is 102 per cent and the mobile subscriber penetration rate is 179.3 per cent. The competition for Internet services is also intense with a total of 189 ISPs. The number of registered customer accounts with broadband access exceeds those with dial-up access by 1 million, and the household broadband penetration rate is 82.1 per cent. According to OFTA,

* Simon Berry is a partner and Vi Vi Chow is an associate at Latham & Watkins LLP. As at June 2010, provided by the Office of the Telecommunications Authority (‘OFTA’). Those who are authorised to provide facility-based local fixed telecommunications services under FTNS licence, fixed carrier licence (‘FCL’) or unified carrier licence (‘UCL’) using wireline or wireless technology (as at May 2010, provided by OFTA). Those who are authorised to provide facility-based external telecommunications services (‘ETS’) under FTNS licence, FCL, UCL and service-based ETS under services-based operator (SBO) licence or PNETS licence (as at May 2010, provided by OFTA). Household fixed line penetration rate is equivalent to the number of fixed lines divided by the number of households (as at April 2010, provided by OFTA). As at March 2010, provided by OFTA. Those who are authorised to provide Internet access services under FTNS licence, FCL, UCL, SBO licence and PNETS licence. As at March 2010, provided by OFTA.

122 Hong Kong there are nearly 1.2 million IPTV subscribers in Hong Kong, and there is, according to government census, around 2.3 million households in Hong Kong: this means more than half of all households in Hong Kong are using IPTV services. These figures demonstrate that the use of telecommunications services is advanced and widespread in Hong Kong.10 Looking at television broadcasting, Hong Kong is a peculiar place in that, despite the fact that there is no limit to the number of licences that can granted, there have only been two domestic free-to-air television programme service providers in about the past 30 years. Further, prior to 2000, there was a monopoly in domestic pay-TV programme service in Hong Kong. Given the potential influence of television programmes (whether domestic free-to-air, domestic pay or others) on the general population, the Broadcasting Ordinance11 contains stringent requirements with regards to the programmes that are broadcast and generic codes of practice for programme, advertising and other standards. Apart from domestic free-to-air and domestic pay-TV service providers, there are two other main categories of television broadcasting licences: non-domestic pay-TV programme service licences and other licensable television programme service licences. Oddly, the four categories of licences are granted by different authorities: domestic television licences are granted and renewed by the Chief Executive in Council (with recommendations from the Broadcasting Authority (‘the BA’)) while the BA issues and renews the licences for the remaining two categories. Confusingly, post‑licensing, the responsibility of regulating compliance with rules and regulations and monitoring compliance and non-compliance rests mainly on the BA. There are in total three radio programme providers operating 13 radio channels. Of the three providers, only one is funded by the government (and it does not hold a sound broadcasting licence). Although officially, there are only 13 radio channels, given the proximity of Hong Kong to mainland China, it is not uncommon for radio signals from radio stations of mainland China to be picked up in Hong Kong. The Chief Executive in Council is responsible for the issuing of sound broadcasting licences. Unlike for television, there is no categorisation for radio licences. ii REGULATION i Regulators The Telecommunications Authority and the Office of the Telecommunications Authority The Hong Kong telecommunications industry is regulated by the Telecommunications Authority (‘the TA’) through its executive arm, the Office of the Telecommunications

OFTA’s 2008/2009 Trading Fund Report. According to statistics from April 2010 to June 2010, provided by Census and Statistics Department of Hong Kong. 10 Certain service providers are permitted to provide more than one type of services and therefore the total number of service providers may be larger than the total number of licensees. 11 Chapter 562 of the Laws of Hong Kong.

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Authority (‘OFTA’). OFTA advises and regulates the telecommunications industry with a view to formulating macrosupervisory policies, while at the same time, oversees licensing of telecommunications services providers (such as unified carriers, space station carriers and mobile virtual network operators). Its other roles include enforcing fair competition in the market (this may be changed by the proposed Competition Bill (see Section VII, infra)), formulating, allocating and managing radio frequency spectrum and satellite coordination. OFTA is also the regulator responsible for supervising and overseeing the implementation and enforcement of measures against unsolicited electronic messages. Finally, OFTA represents Hong Kong in the International Telecommunication Union and other international forums. The two main pieces of legislation administered by OFTA are the Telecommunications Ordinance12 and the Unsolicited Electronic Messages Ordinance (‘the UEMO’).13 The purpose of the Telecommunications Ordinance is to ‘make better provision for the licensing and control of telecommunications, telecommunications services and telecommunications apparatus and equipment’.14 For this purpose, the ordinance contains provisions regulating, inter alia, licensing, preventing some anti-competitive practices and imposing some restrictions on ownership. The UEMO ‘provide[s] for the regulation of the sending of unsolicited electronic messages and for connected purposes’15 and was adopted in 2007. All forms of commercial electronic messages with a ‘Hong Kong link’ are regulated so as to monitor and regulate ‘professional spamming activities’. Users of telecommunications services in Hong Kong now have an option to register on facsimile, short messages and pre-recorded message ‘do-not-call registers’. By late March 2010, more than 2 million numbers had been registered. However, the effectiveness of this piece of legislation is sometimes queried as service providers in various industries still manage to circumvent the regulations and restrictions and shamelessly make relentless unnecessary and irritating marketing calls, facsimiles and text messages.

The Broadcasting Authority and the Television and Entertainment Licensing Authority The BA is an independent statutory body that regulates the broadcasting industry in Hong Kong. It is established under the Broadcasting Authority Ordinance16 and comprises members appointed by the Chief Executive of Hong Kong. The BA’s responsibilities include handling licence applications and renewals, handling complaints, conducting enquiries, overseeing the enforcement of fair competition and levying sanctions on licensees who breach the laws, rules and regulations. It relies on the Commissioner of the Television and Entertainment Licensing Authority (‘TELA’) to discharge executive functions.

12 Chapter 106 of the Laws of Hong Kong. 13 Chapter 593 of the Laws of Hong Kong. 14 Telecommunications Ordinance, Long title. 15 UEMO, Long title. 16 Chapter 391 of the Laws of Hong Kong.

124 Hong Kong

As the executive arm of the BA with regards to broadcasting regulation, TELA is mainly responsible for dealing with complaints against the contents of broadcasting programmes, complaints regarding anti-competitive behaviour and processing applications (new and renewals) for television programme service licences. However, being not only Hong Kong’s broadcasting regulator but also the regulatory agency responsible for the entertainment, film and newspapers industries, TELA also monitors publications, handles film censorship and processes applications for other entertainment and gaming licences (such as amusement game centre licence, mahjong licences) and registration of newspapers. The three main pieces of legislation administered by the BA and TELA for regulating the broadcasting industry are the Telecommunications Ordinance, the Broadcasting Ordinance and the Broadcasting Authority Ordinance. It is worth noting that the licences granted by the BA are different from those granted by OFTA in that television programme services licences issued by the BA are only for the contents, and the programme service providers must separately apply for a carrier licence from OFTA for use of the allocated frequencies.

The Office of the Privacy Commissioner for Personal Data The Office of the Privacy Commissioner for Personal Data (‘the Privacy Commissioner’) is the only independent privacy commissioner in Asia. The Privacy Commissioner has formulated operational policies and procedures relating to the implementation of privacy protection provisions and is responsible for ensuring the protection of the privacy of individuals with respect to personal data and for overseeing the administration and supervision of the Personal Data (Privacy) Ordinance (‘the PDPO’),17 the legislation that regulates the collection and use of personal data in Hong Kong. There are six data protection principles under the PDPO that must be adhered to, and the fourth principle deals with the security of personal data. Telecommunications and broadcasting service providers must be prudent at all times to safeguard personal data that are in their possession against unauthorised or accidental access, processing, erasure or other use. There have been several recent incidents in Hong Kong regarding alleged breach of this principle (for example, the leakage of personal data by members of the Hong Kong Police Force as a result of a peer-to-peer application that was installed on their personal computers. Their alleged lack of awareness of the potential impact of such programmes led to the leakage of important personal data to the public via the Internet). A second example is the alleged misuse of personal data of more than 2 million individuals in Hong Kong that had registered under a rewards programme run by the

17 Chapter 486 of the Laws of Hong Kong.

125 Hong Kong service provider of the biggest electronic payment system in Hong Kong (‘Octopus’).18 The significant leak of the personal data of Octopus users was so significant that, for the first time ever, the Privacy Commissioner issued an interim report on its investigation into the matter at the end of July 2010. The final report is yet to be published. The Privacy Commissioner has published codes and guidelines on personal data privacy protection regarding the Internet for information technology practitioners and also mobile service operators. ii Sources of law As previously mentioned, Hong Kong’s laws governing broadcasting, communications, media and the publication of books and newspapers are scattered in multiple legislation the including: a the Broadcasting Authority Ordinance;19 b the Broadcasting Ordinance; c the Film Censorship Ordinance;20 d the Interception of Communications and Surveillance Ordinance;21 e the Telecommunications Ordinance; f the UEMO; g the Books Registration Ordinance;22 h the Registration of Local Newspapers Ordinance;23 and i the PDPO.

The Communications and Technology Branch of Hong Kong’s Commerce and Economic Development Bureau (‘the CEDB’) is the policy bureau responsible for the policies for broadcasting and telecommunications. However, the responsibility for supervision rests with two separate regulators, the TA and the BA. iii Ownership restrictions The Telecommunications Ordinance The TA has the power to control the ownership of carrier licence holders by refusing to grant consent to any proposed change in a carrier licence holder. This power also allows the TA to determine whether competition will be affected in the telecommunications

18 octopus runs a rewards programme for customers to incentivise the usage of the Octopus card. When one registers for the Octopus reward programme, certain personal data is provided to Octopus. In summer 2010, it was revealed that Octopus had been selling personal data of those registered for the reward programme to other unrelated service providers (such as insurance companies) for direct marketing purposes. Octopus has made a total of HK$44 million selling personal data since early 2006. 19 Chapter 391 of the Laws of Hong Kong. 20 Chapter 392 of the Laws of Hong Kong. 21 Chapter 589 of the Laws of Hong Kong. 22 Chapter 142 of the Laws of Hong Kong. 23 Chapter 268 of the Laws of Hong Kong.

126 Hong Kong market as a result of such change.24 The TA may conduct investigations whenever a person (whether on its own or together with its associated persons25) becomes the beneficial owner or voting controller of (1) 15 per cent (except for those who do not acquire more than 30 per cent and are not or do not concurrently become the beneficial owner or voting controller of more than 5 per cent of the voting shares in any other carrier licence holder (nor exercise any power over the affairs of such other carrier licence holder)), (2) 30 per cent or (3) 50 per cent or more of the voting shares in a carrier licence holder, or acquires the power (whether or not in the form of voting shares) to control the affairs of the carrier licence such that the carrier licence holder must act in accordance with such person’s instructions.26 The Telecommunications Ordinance disqualifies two categories of persons from controlling an entity with a sound broadcasting licence. Subject to exemptions, disqualified persons are restricted from exercising control (or increasing control) over a sound broadcasting licence holder.27 ‘Disqualified persons’ include advertising agents, suppliers of broadcasting materials to other sound broadcasting licence holders, another sound broadcasting licence holder, any persons who (as its business) transmit sound or television material, whether in Hong Kong or outside Hong Kong, and domestic

24 Sections 7P(1), (6) and (16) of the Telecommunications Ordinance. 25 ‘Associated person’ includes: a in the case of a natural person: i a relative of such natural person; ii a partner of such natural person and a relative of that partner; iii a partnership in which the natural person is a partner; iv a corporation controlled by the natural person, by a partner such natural person or by a partnership in which the natural person is a partner; or v a director or principal officer of a corporation referred to in subparagraph (iv); b in the case of a corporation: i an associated corporation; ii a person who controls the corporation and where the person is a natural person, a relative of the person; iii a partner of a person who controls the corporation and, where the partner is a natural person, a relative of the person; iv a director or principal officer of the corporation or an associated corporation and a relative of the director or principal officer; or v a partner of the corporation and, where the partner is a natural person, a relative of the partner; c in the case of a partnership; i a partner of the partnership and, where the partner is a natural person, a relative of the partner; ii a corporation controlled by the partnership, a partner in the partnership or where a partner is a natural person, a relative of the partner; iii a corporation of which a partner is a director or principal officer; or iv a director or principal officer of a corporation referred to in subparagraph (iii). 26 Sections 7P(16) and (17) of the Telecommunications Ordinance. 27 Section 13G of the Telecommunications Ordinance.

127 Hong Kong free‑to‑air or a domestic pay-TV licensees, or associate of any of the any foregoing persons.28 The second category of ‘unqualified persons’ refers to persons who are not for the time being ordinarily resident in Hong Kong29 and who have not at any time been resident for a continuous period of no less than seven years; or in the case of a company, is not a company that is ordinarily resident in Hong Kong. The aggregate of the voting shares that can be held by ‘unqualified persons’ may not exceed 49 per cent of the total number of voting shares of a sound broadcasting licence holder. The TA also imposes a disposal restriction within a three-year period after the grant of a sound broadcasting licence.30 Unless the BA otherwise agrees, the right, title or interest in 15 per cent or more of the shares in a sound broadcasting licence holder may not be transferred or acquired, directly or indirectly, within the three years after the grant date. Any agreement or similar arrangement or understanding that breaches this requirement is void.

The Broadcasting Ordinance As previously mentioned, the Chief Executive in Council grants licences under the Broadcasting Ordinance for domestic free-to-air and domestic pay-TV programme services, whereas the BA is responsible for granting licences for non-domestic and other licensable television programme services.31 Control restrictions for broadcasting licences are set out in Section 8(4) of the Broadcasting Ordinance: In relation to domestic free-to-air and domestic pay-TV programme service licences, such restrictions are as follows: a It must be proven that the exercise of the control and management of the licence holder is bona fide in Hong Kong, and where there are two or more directors (the majority being individuals as opposed to corporates), the individuals who actively

28 Section 13A of the Telecommunications Ordinance. 29 ‘Ordinarily resident in Hong Kong’: a in the case of an individual, means: i resident in Hong Kong for not less than 180 days in any calendar year; or ii resident in Hong Kong for not less than 300 days in any two consecutive calendar years; and b in the case of a company, means a company: i that is formed and registered in Hong Kong under the Companies Ordinance (Cap 32); ii in the case of which: A if not more than two of its directors take an active part in the management of the company, each of those directors is for the time being ordinarily resident in Hong Kong and each of them has at any time been resident for a continuous period of not less than seven years; or B if more than two of its directors take an active part in the management of the company, a majority of those directors are each of them, for the time being ordinarily resident in Hong Kong and each of them has at any time been resident for a continuous period of not less than seven years; and iii the control and management of which is bona fide exercised in Hong Kong. 30 Section 13J of the Telecommunications Ordinance. 31 Sections 8(1) and (2) of the Broadcasting Ordinance.

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participate in the company must satisfy residency requirements.32 The residency requirement is equally applicable to those directors who actively participate in management and operations, and on the principal officers (being those in charge of the selection, production or scheduling of television programmes) of the licence holder. b As previously mentioned, no disqualified person or their controlling entities or persons or associates (unless otherwise disclosed in the licence application) can exercise control (or remain in control) over the licence holder. The purpose of this is to restrict cross-media ownership.

The restrictions are less stringent for non-domestic and other licensable television programme service licence holders, which are only required to have at least one director or principal officer to have satisfied the residency requirement.

Broadcasting licences ownership and voting restrictions Restrictions regarding the holding, acquisition or exercise of voting control of a licence holder (except for domestic pay-to-air television programme licence holders) are set out in Schedule 1, Part 3 of the Broadcasting Ordinance. There are restrictions on the percentage of voting control of unqualified voting controllers in Schedule 1, Part 3(19) in that unqualified voting controllers cannot exercise voting control in excess of49 per cent of the total voting control at the time. Further, prior approval of the BA is required for the holding, acquisition or exercise of voting control by an unqualified voting controller of 2 per cent to 6 per cent or 6 per cent to 10 per cent, or more than 10 per cent of a licence holder. If an unqualified voting controller holds more than 10 per cent, only up to 10 per cent of the voting rights can be exercised by such controller. An ‘unqualified voting controller’ is a controller who is not a qualified voting controller, and a qualified voting controller refers to a voting controller who satisfies the ordinarily resident requirement and who, in the case of an individual, has resided in Hong Kong for a period of no less than seven years or in the case of a corporation, whose directors satisfy the Hong Kong residency requirement. An additional hurdle for obtaining a domestic free-to-air television programme service licence would be that the licence must shall not be a company that is a subsidiary of a corporation. iv Competition measures Competition provisions governing the broadcasting and telecommunications industry are currently set out in the Broadcasting Ordinance and the Telecommunications Ordinance, respectively. For the telecommunications industry, they are found in Sections 7K (anti-competitive practices), 7L (abuse of position) and 7N (non-discrimination)

32 Such individuals must be ordinarily resident in Hong Kong, which means the individual must reside in Hong Kong for no less than 180 days in a calendar year or have done so for no less than 300 days in any two consecutive years (Ordinarily Resident) and further, such individuals must have ordinarily resided in Hong Kong for a period of not less than seven years.

129 Hong Kong of the Telecommunications Ordinance. Under Section 7K, any licensee licensed under the Telecommunications Ordinance shall not (unless otherwise exempted pursuant to Section 39 of the Telecommunications Ordinance) engage in acts with the intention of restricting or that would restrict competition in the telecommunications market. When assessing whether certain conduct amounts to anti-competitive behaviour, the TA would consider, without limitation, (1) whether there is a price-fixing element, (2) whether the action would result in the prevention or restriction in the supply of goods or services to competitors and (3) agreements regarding the sharing of markets on agreed geographical or customer lines. Certain actions prescribed under Section 7K(3) are deemed anti-competitive, such as, for example, entering into agreements, arrangement or understanding that would lead to (1) anti-competitive conduct, (2) giving an undue preference to, or receiving an unfair advantage from, an associated person placing a competitor at a significant disadvantage or (3) preventing or substantially restricting competition. The TA has the power to determine whether an act is anti-competitive. Section 7L of the Telecommunications Ordinance states that licensees licensed under the Telecommunications Ordinance that are in a dominant position are not to abuse their position. The TA has the discretion to determine whether an operator is in a dominant position or not, taking into account guidelines set out in the provision and if, in the opinion of the TA (following guidelines set out in the provision), the conduct in question has the purpose or effect of preventing or substantially restricting competition in a telecommunications market then such conduct would be deemed abuse of dominant position. In addition to the foregoing, as part of the competition measures under the Telecommunications Ordinance, no licensees are permitted to discriminate service recipients on charges or on terms of supply. The Broadcasting Ordinance also has its own competition provisions, similar to the Telecommunications Ordinance, which prohibit anti-competitive behaviour and abuse of dominance. Section 13 (prohibition on anti-competitive conduct) prohibits a licensee under the Broadcasting Ordinance from engaging in conduct that ‘has the purpose or effect of preventing, distorting or substantially restricting competition in a television programme service market’. When determining whether there is anti- competitive behaviour, the BA will look at, without limitation, (1) whether there is a price-fixing element; (2) whether the action would result in the prevention or restriction in the supply of goods or services to competitors; and (3) agreements regarding the sharing of markets on agreed geographical or customer lines. Any agreement permitting anti-competitive behaviour shall be void. Section 14 (prohibition on abuse of dominance) is similar to Section 7L of Telecommunications Ordinance as it prohibits a dominant market player from abusing its position in the television programme service market. Like the TA, the BA will follow guidelines and exercise discretion when assessing whether an entity is in a dominant position and whether there is abuse of such position. The conduct of an associate of a licensee, or the position of the associate in a television programme service market, may be considered when the BA assesses the situation. Where it is of the BA’s view that there is anti-competitive behaviour or abuse of position, the BA has

130 Hong Kong the right to serve a cease-and-desist notice on the licensee,33 to be complied with by a particular date. iii SPECTRUM POLICY

Spectrum policy in Hong Kong encompasses management, pricing, supply and rights relating to spectrum. It is monitored and regulated by the TA. Since 2007, the approach adopted by the Hong Kong government regarding spectrum management has been the market-based approach34 and it will not depart from this approach unless there is a public policy reason to do so. The TA is open about the availability of spectrum and pursuant to the Radio Spectrum Policy Framework announced in April 2007, a spectrum release plan governing a three-year period going forward was released. Under the spectrum release plan, industry participants can bid for spectrum use rights through an open bidding or tendering process. To ensure industry participants are kept aware of the availability of spectrum, the release plan is updated every year. Unsurprisingly, spectrum availability determines the number of market players in the industry. Currently, spectrum is auctioned and allocated by the TA through the spectrum release plans. Where a spectrum has been previously allocated under an earlier release plan, it will be clearly stated in the current release plan. For the three-year period from 2010/11 to 2012/13, the spectrum release plan was announced on 30 April 2010 for the industry participants’ and the public’s information. The TA has clearly stipulated that the release plan is non-binding, and the TA is not bound to allocate or assign any spectrum to any industry player. All allocation of spectrum, as and when such allocation is made, is be subject to the TA’s discretion. The government imposes fees on the use of spectrum since it is a limited resource, but demand is high. Such fees are referred to as the spectrum utilisation fee (‘SUF’) and are applicable to all use of spectrum save for those reserved for government use. As an example, in January 2009, the 2.3GHz and the 2.5/2.6GHz bands were made available for auction. In the end, a total of 90MHz in the 2.5GHz band sold for approximately HK$1.5 billion to three bidders.35 As part of the spectrum management policy, Hong Kong is also considering spectrum trading so as to create a market for secondary trading of spectrum use. We understand that36 the government has commissioned feasibility studies but has yet to release any conclusions from such studies. The TA is also considering further liberalisation by permitting changes in the use of assigned spectrum. Until the government announces

33 Section 16 of the Broadcasting Ordinance. 34 ‘Market-based approach’ for spectrum management means ‘methods relying on market forces to ensure the efficient use of spectrum as a public resource’. (From Radio Spectrum Policy Framework (April 2007) published by the Communications and Technology Branch of the Commerce, Industry and Technology Bureau of Hong Kong). 35 Please refer to Section VII, infra, for details regarding the latest spectrum auction, which was completed in June 2010. 36 OFTA’s 2008/2009 Trading Fund Report.

131 Hong Kong the results of the feasibility report, the telecommunications industry in Hong Kong will not know what potential changes there may be (and the extent of such changes) in relation to spectrum. If spectrum trading is adopted, relevant competition measures may be required, and there may be allocation of spectrum bands that are permitted for secondary trading and a new licence category for spectrum use may need to be created. iV MEDIA i Digital switchover Digital television was first introduced in 2000 by a pay-TV service provider, and then followed by other pay-TV service providers. Broadcasting of digital television by pay-TV service providers are through cable, satellite and broadband. It was not until December 2007 that Hong Kong’s only two domestic free-to-air television service providers commenced simulcast, that is, provided both analogue and digital terrestrial broadcasting services. These service providers broadcast digital television via radio communications. With television services becoming digital, consumers will have access to HDTV, interactive TV, electronic programme guides and datacasting services. It is the intention that digital television will solve technical issues, such as bad reception, while at the same time expanding consumers’ choice of programming. Further, spectrum will become available once analogue broadcasting is switched off since analogue broadcasting requires more spectrum than digital broadcasting even if the same amount of information is carried, and the released spectrum can then be used for other telecommunications services, including more television channels. The two domestic free-to-air television service providers have, as a result of the introduction of digital broadcasting, introduced more television channels originating from Hong Kong, mainland China and also Taiwan. The results of a survey conducted in June 2010 showed that approximately 53 per cent of the households in Hong Kong are receiving DTTV services (representing approximately 1.23 million households). It is estimated that there will be digital terrestrial coverage of approximately 89 per cent by the end of 2010 when more transmitting stations are set up.37 The Hong Kong government’s current plan is to have only digital broadcasting in place by 2012.

V YEAR IN REVIEW and conclusions i The Competition Bill A very important piece of future legislation, the Competition Bill, was introduced in July of this year and has been submitted for Hong Kong Legislative Council’s consideration. Although not solely related to broadcasting or telecommunications, the proposed bill spans various sectors and business. If passed into law, relevant competition provisions that are currently embedded in the Telecommunications Ordinance and the Broadcasting

37 Provided by the Commerce and Economic Development Bureau.

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Ordinance (and any subsidiary regulations) will be amended or repealed (as applicable). Amendments and changes to the Telecommunications Ordinance and the Broadcasting Ordinance are set out in Schedule 8, Parts 4 and 9 of the Competition Bill. Some more important changes are described infra. It is proposed in the Competition Bill38 that the TA and the BA will have concurrent jurisdiction with the Competition Commission (‘the Commission’) with regards to telecommunications and broadcasting related competition matters. The TA will have jurisdiction over (1) entities licensed under the Telecommunications Ordinance (save for sound broadcasting licensees); (2) unlicensed entities whose activities require them to be licensed under the Telecommunications Ordinance (again, save for is sound broadcasting licences); or (3) entities exempted pursuant to Section 39 of the Telecommunications Ordinance. There is a very specific ‘merger rule’ set out in Schedule 7 of the Competition Bill which only applies to the telecommunications sector. Save as otherwise exempted, undertakings that are subject to this merger rule are prohibited from ‘directly or indirectly, carrying out a merger that has, or is likely to have, the effect of substantially lessening competition in Hong Kong’. Factors that can be taken into account in determining whether there is substantial lessening of competition are set out in Schedule 7 of the Competition Bill. The BA, like the TA, has concurrent jurisdiction with the Commission also with regards to (1) entities licensed under the Broadcasting Ordinance, (2) unlicensed entities whose activities require them to be licensed under the Broadcasting Ordinance, and (3) entities licensed under the Telecommunications Ordinance for sound broadcasting licence. Further, there is a mechanism in the Competition Bill whereby competition matters can be transferred between regulators with concurrent jurisdictions. Sections 7K (anti-competitive practices), 7L (abuse of position), 7N (non- discrimination) and 7P (Authority may regulate change s in relation to carrier licensees) in the Telecommunications Ordinance and section 13 to 16 in the Broadcasting Ordinance are to be repealed. They will be replaced by the conduct rules set out in Part 2 of the Competition Bill. A new Section 7Q (exploitative conduct) will be added to the Telecommunications Ordinance. One other potential area of change that may take place as a result of the passing of the Competition Bill will be in relation to the codes and guidelines that are currently in issue. The TA and the BA have each issued their own guidelines on competition-related matters, such as in relation to their approach to analysis, handling of competition complaints and enforcement of competition procedures under the Telecommunications Ordinance and the Broadcasting Ordinance respectively. Section 35 of the Competition Bill states that the Commission must, inter alia, ‘issue guidelines (a) indicating the manner in which it expects to interpret and give effect to the conduct rules […]’ after having consulted any persons it considers appropriate. However, it is not clear whether the Commission will waive its right under Section 35 of the Competition Bill and allow the BA and the TA to issue new guidelines on broadcasting and telecommunications-related competition matters pursuant to the concurrent jurisdiction provision.

38 Part 11, Sections 158 to 161 of the Competition Bill.

133 Hong Kong ii The Communications Authority Bill In light of the continued blurring of the roles of the BA and the TA, on 18 June 2010, the Communications Authority Bill (‘the CA Bill’) was published in the government Gazette. The purpose of the CA Bill is to establish the Communications Authority (‘the CA’) to govern the electronic communications industry. The functions of the BA and the TA will be transferred to the CA and, like the TA, the CA will operate through an executive arm, the Office of the Communications Authority (‘OFCA’). OFCA will be a combination of the broadcasting arm of TELA (other existing TELA functions such as entertaining and miscellaneous licensing, film censorship and registration of newspapers (the non-broadcasting functions) will be transferred to other government departments), and OFTA. The CA Bill aims to create a unified regulatory body that will service the broadcasting and telecommunications industries. Relevant sections in the various existing ordinances will be repealed or amended (as applicable) and under the CA Bill, and the CA will take over all powers and functions of the BA and the TA and the BA will both be dissolved.39 iii Auction of radio spectrum As part of the implementation of the Framework for Development of Broadcast-type Mobile TV Services in Hong Kong, which was announced on 11 February 2010, an auction of the UHF band in the radio spectrum for the provision of broadcast-type mobile television services took place in June 2010. There were a total of 18 bidding rounds over a two-day period and three bidders. OFTA announced China Mobile Hong Kong Corporation Limited (‘CMHK’) as the successful bidder on 29 June 2010 for the radio spectrum in the 678–686MHz band at the SUF of HK$175 million (please note that there was a minimum fee set at HK$24 million). Although CMHK has succeeded in its bid, in addition to paying the SUF, it is obliged to submit a performance bond and to hold a 15-year unified carrier licence issued by the TA (such licence is required for the conveyance of mobile television services). CMHK is also obliged to ensure that at least 50 per cent of the Hong Kong population is provided with service coverage within 18 months of its obtaining the licence from the TA and at least 75 per cent of the transmission capacity must be used to for mobile television content. iv Domestic free-to air-television programme services licences Since the late 1970s, Hong Kong has been served by only two domestic free-to-air television programme service providers, one of which is listed on the Hong Kong Stock Exchange. It was not until recently that other corporations have shown interest in this market. In July 2010, the BA issued consultations on the applications from three applicants in accordance with Section 9(3) of the Broadcasting Ordinance. Comments on the consultation have closed on 8 August 2010 and consultation conclusions have not yet been issued. However, it will be interesting to know the result as the successful application

39 Part 2, Section 7 of the CA Bill.

134 Hong Kong by any one or more of the three applicants will mark the end of a long‑established status quo of having only two choices for domestic free-to-air television services. It is still unclear as to when the proposed changes to competition measures described in the Competition Bill will be made and the merging of the BA and the TA will occur, given that the Competition Bill and the CA Bill are still in the process of being considered by the Legislative Council. However, it is anticipated that after the new regime commences, there will be a comprehensive review of the current regulatory regime for the telecommunications sector and recommendations for updates to be made where required.

135 Chapter 14

Japan

Hiroki Kobayashi, Tim Johnson and Tomohiko Kamimura*

I INTRODUCTION

In its heyday, the guiding hand of a competent government bureaucracy was lauded as a mainstay of Japan’s rapid advancement in areas of industrial and high-tech manufacturing. In recent years, Japan’s advanced and unique mobile phone technology, along with the savvy of its mobile phone customers, has become known the world over. Today, in the face of rapid technological change in telecommunications and media, the efforts by Japanese regulators to keep pace have been uneven. The Japanese Ministry of Internal affairs and Communications (‘MIC’), the regulatory authority for the media and telecommunications sectors, has made some efforts to update the regulatory regime amid domestic and foreign criticism of its opaque and at times outmoded oversight of these sectors. In particular, MIC has considered changes to simplify and streamline its broadcasting and telecommunications licensing regime to reflect the convergence of broadcasting and telecommunications. That effort has culminated in the recent introduction of amendments to several of Japan’s media and telecommunications laws, which will be considered by Japan’s legislature before the end of 2010. Additional legislation to encourage ISPs to curtail the flow of copyright- infringing content may also be on the horizon. On the other hand, domestic political considerations have hampered decision-making on the adoption of a new multimedia broadcasting platform and jeopardised momentum towards opening up Japan’s media sector to additional foreign investment.

* Hiroki Kobayashi is a corporate partner, Tim Johnson is a corporate associate and Tomohiko Kamimura is an associate at Latham & Watkins Gaikokuho Joint Enterprise.

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II REGULATION

Statues are the ultimate source of law in the telecommunications and media sectors in Japan. The core statutes are a statutes regulating infrastructure, including the Wire Telecommunications act (governing facilities for wired signal transmission, such as telephony, wired broadband networks and cable television) and the Radio Act (governing facilities for wireless signal transmission, such as mobile phones, terrestrial and satellite television broadcast and high-powered Wi-Fi networks); and b statutes regulating telecommunications and media businesses, and the content those businesses carry or provide, including the Telecommunications Business Act and the Broadcast Act.

In addition, there are specialised statutes that regulate cable television broadcasting and facilities, audio broadcasting over cable and broadcasting of content through third-party satellites and broadband networks. These statutes provide MIC with broad authority to regulate telecommunications and broadcasting. MIC exercises its regulatory power in numerous ways: it has the authority to grant broadcasting licences (for facilities such as television and radio stations that produce and broadcast media content), wireless transmission licences (for mobile phones and such facilities as mobile phone base stations and satellites) and telecommunication business licences (for traditional wired communications as well as mobile phone providers and ISPs), and monitors the businesses conducted with such licences. MIC also allocates radio spectrum and has adopted detailed regulations to monitor and establish technical standards applicable to spectrum users and their licensed facilities and businesses. MIC’s decision-making process in exercising this authority has often been criticised as opaque and arbitrary. Foreign ownership and management of broadcasting licence holders, wireless transmission licence holders and Nippon Telecommunication and Telegraph Corporation (‘NTT’), the semi-privatised national telecommunications service provider, is restricted by statute. Similar limits on foreign ownership of telecommunication business licence holders were lifted in 1998, which opened up investment in Japan’s telecommunications industry, particularly in laying undersea cables and in the establishment of ISPs. In 2002, foreign-owned companies became eligible to obtain third-party facility broadcast licences to provide broadcast programming to Japan using third-party satellite and cable facilities. Further, pursuant to Japan’s Foreign Exchange and Foreign Trade Act, certain acquisitions of shares in broadcasting licence, wireless transmission licence and telecommunication business licence holders by non-Japanese parties is subject to prior filing and a waiting period. Ordinarily, this is a pro forma requirement where no national security concerns are present.

Regulated transactions include: (1) an acquisition of 10 per cent or more shares in such licence holder whose shares are traded on a stock exchange or over-the counter market and (2) an acquisition from a Japanese party of any shares in such licence holder whose shares are not traded on a stock exchange or over-the-counter market.

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Ownership of multiple broadcast outlets is also restricted by MIC regulations implementing the Radio act. This restriction on the concentration of ownership is intended to support press freedom and diversity of speech in broadcasting. The restriction includes limits on ownership of shares in, and board seats of, multiple broadcasting licence holders, as well as upper limits on the use of satellite transponder capacity. Cross-ownership of newspapers and broadcasters has not been restricted in Japan, and newspaper companies often hold large ownership stakes in broadcast companies – in fact, each major private Japanese television broadcast network is affiliated with a major newspaper. However, following a change of the government in 2009, the Minister of Internal Affairs and Communications announced that he would propose a bill to restrict such cross-ownership. Finally, in addition to these cross-ownership and foreign ownership and management limits, MIC approval is also required for mergers and acquisitions that result in a new entity holding a broadcasting or wire transmission licence. Therefore, a statutory merger involving a licence holder or the divestiture of a business conducted under a licence generally requires MIC approval. MIC review is primarily to determine if the transferee of such licence would be eligible to independently qualify as a new licensee.

III INTERNET and IP-BASED SERVICES i Internet and Internet protocol regulation In Japan, MIC regulates Internet and IP-based services (such as high-speed Internet and VoIP), together with traditional telephony and mobile phones, under the Telecommunications Business Act. For the purpose of the regulations, ‘telecommunication’ generally means communication addressed to specified individuals. The Telecommunications Business Act and the regulations thereunder emphasise protection of the secrecy of communications and the reliable and non-discriminatory provision of telecommunication services. Telecommunication regulations, in combination with antitrust law, also facilitate competition among telecommunication service providers. Because providers can become dominant to the exclusion of new entrants once their network or technology standard has been adopted by a critical mass of users, MIC has adopted guidelines to regulate unfair competition by providers that have high market shares. For example, MIC guidelines state that it would raise antitrust issues if a telecommunications service provider with a high market share contractually restricts its customers from switching to another service provider or charges an excessive cancellation fee. The Telecommunication Business act also regulates services to facilitate telecommunication between parties by service providers that do not operate network facilities, such as dedicated hosting services on which clients can operate an e-mail server. Internet-based services between a service provider and its own customers, such as net

As a technical matter, Internet-based services are considered to be addressed to specified individuals because IP devices must send a request to the network in order to receive data.

174 Japan banking and Internet-based newsletter and media subscriptions, are not considered to be telecommunication and therefore are not regulated under the Act. MIC regulations do not impose technical standards for Internet protocol. MIC established a study group to facilitate the transition from IPv4 protocol to IPv6 protocol in 2003, and in 2007, MIC issued guidelines to encourage governmental entities to prepare for IPv6 protocol by 2008. However, because the adoption of IPv6 protocol has been slower than anticipated, MIC’s efforts to facilitate the transition to IPv6 protocol have yet to bear fruit. ii Universal broadband service Under the Telecommunications Business act and the nTT act, nTT group must provide analogue telephony service in all areas in Japan. There is no similar law requiring universal broadband service. To encourage private companies to construct broadband infrastructure, in 2004, MIC announced its u-Japan strategy (‘u’ for ‘ubiquitous’). One goal of the initiative is the construction of nationwide broadband infrastructure, wired and wireless as appropriate, with a target date for 100 per cent coverage of March 2011. In 2006, the government began to subsidise capital expenditure by private companies for the development of broadband infrastructure, and to provide tax benefits and low- interest financing for such projects. For the most part, the u-Japan strategy has been successful in facilitating the extension of broadband access to Japan’s population centres. Broadband Internet access was available to 98.8 per cent of Japanese households in March 2009. Even with subsidies, however, private companies have been hesitant to build the infrastructure required to provide broadband service to Japan’s isolated islands and mountainous areas. The government estimates that for 110,000 households, satellite is the sole practical means of providing broadband services. In 2009, local governments launched programmes to subsidise the purchase of equipment to receive satellite broadband service in such areas. With such direct governmental assistance for the ‘last mile’ of broadband coverage, MIC expects that the target of 100 per cent broadband coverage by March of 2011 will be achieved. Despite these infrastructure improvements, not all Japanese have taken advantage: the broadband penetration rate for Japanese households stood at only 60.6 per cent as of March of 2010. The Japanese government estimates that the adoption of broadband Internet usage by all households would raise annual consumption by up to ¥8.7 trillion, or 1.5 per cent of GDP, and has stated a policy favouring the enrichment of broadband applications and services in order to expand the demographic profile of Japan’s Internet users. iii Content regulation and protection Because digital content is easily duplicated and disseminated online, the infringement of intellectual property rights on the Internet is endemic. The dissemination of private information, both financial and personal, as well as defamatory information over the Internet, is recognised as another serious problem in Japan. Lawmakers and regulators have struggled with the trade-off between regulating Internet content to protect intellectual property and privacy, and the danger that such regulation may pose to the freedom of expression and the privacy of communications.

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In keeping with Japan’s constitutional protection of the freedom of speech and the secrecy of communication, the Telecommunication Business act prohibits ISPs from censoring or infringing on the privacy of communications passing through their networks. Under the Act, ‘deep packet’ inspection without user consent presumptively infringes upon the privacy of communication. However, ISPs may control content passing through their networks that is harmful to others. A statute commonly known as the Internet Provider Liability Limitation Act, enacted in 2001, provides a safe harbour for ISPs that delete content that infringes upon other parties’ intellectual property rights or privacy. Under the Act, no ISP may be held liable for the deletion of content on its network if the ISP reasonably believes that such content infringes the privacy or intellectual property rights of others, or a third party alleges such infringement and the sender of the content does not respond to the ISP’s inquiry within seven days. ISPs are not currently required by statute to proactively delete infringing content. The Internet Provider Liability Limitation Act also shields ISPs from tort liability for failing to delete infringing content. Under this provision, an ISP may only be liable for infringing activity on its network if it actually knew or reasonably should have known about the infringement. In reliance on this statutory defence to liability, ISPs generally do not take steps to monitor the content passing through their networks. As a way of encouraging ISPs to take greater responsibility for the content on their networks, a government advisory committee report recently encouraged debate of a proposal to impose liability on ISPs that fail to take measures to control copyright-infringing content. The Internet provider Liability Limitation act also authorises persons whose rights are infringed by content delivered over the Internet to demand information regarding the sender of the content from the ISP, so that he or she may take legal action against the sender. However, as a practical matter, it is often not possible to identify the original sender where content passes through multiple networks. iv National security As discussed in Section VI, iii, infra, the Japanese National Police Agency is responsible for Japan’s cybersecurity. Beyond the authorisation of day-to-day monitoring and information gathering carried out by the national police agency, Japan has no laws directly addressing issues of national security in cyberspace that would be comparable to laws in the US and other jurisdictions. However, the Minister of Foreign Affairs has recently remarked that cyber terrorism is a growing threat to national security.

IV SPECTRUM POLICY i Development Since the launch of mobile phones in Japan in 1979, the need for spectrum has steadily increased with the rise of new technologies utilising wireless data transmission. The number of licensed wireless stations and devices increased from 3.8 million in 1985 (a majority of which were for amateur radio stations and handheld two-way radios), to 117 million in 2010 (98 per cent for mobile phone devices).

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Although MIC describes its own decision-making process on spectrum policy and the allocation of spectrum as open and collaborative – including consultations with the public, scholars and industry experts – as the demands upon Japan’s available spectrum increase, MIC decision-making has been frequently criticised as arbitrary and lacking in transparency. This has led to some calls for spectrum auctions as a fairer method of allocation. The forthcoming discontinuation of analogue television broadcasts in favour of digital broadcasts, scheduled for 2011, and the advent of next-generation mobile networks, including the 3.9 generation (‘3.9G’), scheduled to be commercialised between now and 2012, present new opportunities for more transparent and efficient allocation of spectrum in the near future. ii Flexible spectrum use When MIC grants a wireless transmission licence, the licence specifies the authorised use of the transmission station or device and the spectrum that is allocated for its operation. The term of the licence is five years, during which MIC does not generally permit a change of the specified use. MIC’s rationale for this has been that licences are granted only after a finding that the requested allocation of spectrum for the specified use is appropriate and consistent with public policy. Therefore, any change to the licence requires MIC’s de novo review. Such inflexibility by MIC during a time of rapid change in wireless technology has had the effect of hindering the efficient use of allocated spectrum by licence holders who, for example, may wish to use a satellite for both broadcasting and telecommunications or use a terrestrial broadcast station for television broadcasts instead of radio. Under the amendments to the Broadcast Act that will be considered by Japan’s legislature later this year, however, MIC would be able to grant licences that allow for various types of broadcasts or both broadcasting and telecommunications from a single facility. iii Broadband and next-generation mobile spectrum use One opportunity for more efficient spectrum usage is the development of next- generation mobile networks that will use less spectrum for the same amount of data. After analogue television broadcasts are discontinued in Japan in July 2011, the spectrum allocated for analogue broadcasts will be reassigned by MIC to a next-generation platform for multimedia broadcasting to mobile devices and to mobile networks that will use 3.9G technology. After a lengthy run-up, MIC’s process for deciding who would be awarded the licence to build the next-generation multimedia broadcasting platform reached its conclusion in September 2010. The two consortiums vying for the licence were led by Japan’s two largest wireless carriers, NTT DOCOMO and KDDI. NTT DOCOMO, partnered by Fuji TV and other major TV stations, backed a format based on Japan’s current digital television standard. KDDI, partnered by QualComm, proposed the adoption of QualComm’s ‘MediaFLO’ technology, already in use in the United States. The choice between two of Japan’s leading telecommunications companies stirred significant political interest. While MIC has customarily picked the winner in competitive bid situations, in this case, the decision was assigned to the Radio Regulatory

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Council, an advisory panel to MIC. This approach was in response to requests by the Democratic Party of Japan, newly elected in 2009, and the US government to increase the transparency of the screening process. Although a decision was anticipated in August 2010, it was postponed at the last minute amid political pressure to reach a result where the two consortiums would collaborate on the project. In the end, the Radio Regulatory Council selected nTT DOCOMO, citing the lower infrastructure costs associated with its plan, which is expected to result in lower costs being passed on to subscribers and content providers. Whether the application of a new decision-making process, or successful resistance to the political pressure to forge a joint bid, heralds a new model for major licensing decisions remains to be seen. The decision may also have implications for mobile phone makers, as the adoption of the nTT DOCOMO standard is likely to reinforce the dominance of Japanese handset makers in their home market. iv Spectrum auctions and fees MIC imposes spectrum usage fees on broadcasters, mobile phone carriers and other businesses that use radio spectrum, as provided for in the Radio Act. The formulae used to establish the usage fees have been criticised as unfair. Until 2005, the fees were determined, in the case of broadcasters, per broadcaster, and in the case of mobile phone carriers, by the number of base stations and subscriber handsets. Even after changes were made in 2005, the formulae still favour broadcasters, satellite operators and other ‘vested’ rights holders. The total amount of spectrum fees MIC received for the fiscal year ending March 2009 was approximately ¥75 billion, 84 per cent of which was paid by mobile phone carriers and only 5 per cent of which was paid by broadcasters, even though the bandwidth of spectrum occupied by mobile phone carriers is narrower than that occupied by broadcasters. MIC’s use of the spectrum fees has also been criticised. While the fees are purportedly charged to cover spectrum administration costs, such as monitoring illegal spectrum use, MIC has been derided for using the fees to pay for ‘miscellaneous’ expenses that appear to have little connection to spectrum administration. After the election of a new government in 2009, MIC formed a committee to explore reform of spectrum usage fees. Some economists have recommended the implementation of spectrum auctions, such as those used in the US and EU countries, as a fairer method of spectrum allocation. However, mobile phone carriers have come out against spectrum auctions, concerned that their primary effect would be to raise funds for the government by significantly increasing spectrum costs. The American Chamber of Commerce in Japan has recommended that MIC, which has administered spectrum allocation since 1952, cede its authority over spectrum policy to an independent telecommunications regulator modelled on the Office of Communications in the United Kingdom.

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V MEDIA i Digital switchover In Japan, digital television broadcasts from broadcasting satellites (‘BS’) began in 2000, and terrestrial digital television broadcasts began in 2003. analogue terrestrial and analogue BS broadcasts will be switched off on 24 July 2011. Digital television broadcasts provide viewers with high-definition video and audio, including 5.1 channel surround audio. Data broadcasting of news headlines, traffic, weather and stock quotations, and interactive television services are also available through digital television broadcasts. Although there have been trials for digital radio since 2003, there are no plans to cancel or replace analogue radio. Any future for digital radio in Japan may be via multimedia broadcasting to mobile devices. MIC, television broadcasters and television manufacturers and retailers are carrying out an intensive public awareness campaign about the digital switchover to encourage the public to acquire the equipment necessary for digital reception. As of March 2010, 83.8 per cent of Japanese households were equipped for digital reception. The figure for low- income households lagged at only 67.5 per cent, as the equipment for digital reception, including a digital-compatible television (or a digital-analogue converter) and an antenna for receiving digital broadcasts, may be costly for low-income households. The use of different radio spectrum for digital broadcasts and analogue broadcasts poses a technical problem for some households. Currently, in areas where building interference causes poor analogue television reception, the owner of the obstructing building is required to install shared signal receiving equipment and provide analogue television signals by cable or other means to the affected households. Because different spectrum is used for digital television broadcasts, the impact of building interference on digital reception is different than for analogue reception. Therefore, in areas where building owners provided equipment for analogue reception to certain households in the past, the same owners may not be responsible for the digital conversion of those households. As a result, households that currently receive broadcasts through shared signal receiving equipment may not know whether they will be able to receive digital broadcasts directly or whether new shared signal receiving equipment will be provided for them. As of March 2010, only 47.8 per cent of households currently covered by such shared signal receiving equipment were equipped for digital reception. Currently, digital terrestrial and BS television broadcasts simply duplicate the channels available by analogue terrestrial and BS broadcasts. Upon the switchover from analogue broadcasts to digital broadcasts, the spectrum currently used for analogue BS broadcasts will be allocated to several new digital BS channels, which will launch in October 2011. ii Internet-delivered video content Until recently, the delivery of video content in Japan has been through terrestrial, satellite and cable television broadcasts. In recent years, video content delivery utilising Internet protocols, both through dedicated networks and over the Internet, has been steadily on the rise. IPTV using IP multicast technology is the leading service for delivery of video through dedicated networks. Major telecommunication companies offering fibre-optic

179 Japan data services, such as NTT and KDDI, offer IPTV as an optional service. IPTV services provide simultaneous retransmission of terrestrial and satellite television broadcasts, as well as exclusive IPTV channels with programming from domestic and foreign third- party programme providers, such as MTV, Nikkei CNBC and BBC World. IPTV also includes VOD services. The popularity of video delivery over the Internet through video-sharing sites (such as YouTube) and other content providers is thought to be responsible for large increases in IP traffic in recent years. In Japan, traditional television stations (such as NHK) have tried to capitalise on the acceptance of Internet video by offering archived shows for a fee. As of November 2009, each second the download traffic from broadband networks in Japan averaged 1.36Tb, an increase of 38 per cent over November of 2008. In Japan, where flat fees for unlimited Internet usage are the norm for both household ISPs and for mobile networks, flat fee Internet providers are now beginning to grapple with the question of whether their customers will accept a pricing model that charges users based on the amount of data that they transmit. The president of Softbank, the exclusive mobile network service provider for iPhones and iPads in Japan, recently made waves by publicly commenting on the challenge of maintaining the unlimited data plans expected by customers. iii Globalisation and foreign investment The Japanese government’s policy on foreign investment in media businesses has been to limit foreign ownership of terrestrial wireless broadcasting while opening up satellite and cable broadcasting opportunities to foreigners. Restrictions on foreign ownership of third-party facility broadcast licences (licences to provide broadcast content to Japan through cable and satellites) were lifted in 2002. However, restrictions on foreign ownership of terrestrial broadcasters became more stringent in 2005. US and European companies have long criticised these foreign ownership limits. As discussed in Section II supra, foreign ownership and management of broadcasting licence holders is restricted by statute. Specifically, no broadcasting licence may be held by or granted to a foreign national, a foreign entity, or a Japanese entity that has either a non-Japanese director or 20 per cent or more of its voting shares owned by foreign nationals or entities. If foreign nationals or entities acquire 20 per cent or more of the voting shares of a broadcasting licence holder, the licence is automatically cancelled. To avoid such cancellation, any broadcasting licence holder whose shares are traded on a stock exchange is permitted by statute to refuse to perfect the transfer of its shares if the transfer would cause it to violate foreign ownership restrictions. Until 2005, this limitation on foreign investment applied only to the direct ownership of broadcasting licence holders by foreign entities or individuals. Therefore, a non-Japanese party was able to own a broadcasting licence holder through a Japanese subsidiary. However, in 2005, indirect ownership of terrestrial broadcasting licence holders became restricted. The restriction was triggered by public outcry surrounding the ‘Livedoor scandal’. In 2005, Livedoor, a Japanese company involved in finance and a wide range of Internet-related ventures, acquired a large amount of the common stock of Nippon Broadcasting System, a radio broadcasting licence holder, in a manner designed

180 Japan to circumvent certain securities law procedural requirements. Livedoor financed the acquisition by issuing low-priced convertible bonds to an affiliate of Lehman Brothers, the US investment bank. Lehman Brothers would have been able to acquire a majority of shares of Livedoor’s investment subsidiary upon conversion of the convertible bonds. The public scrutiny of the manner of Livedoor’s acquisition of shares also drew attention to the apparent loophole in the foreign ownership restrictions that put Lehman Brothers in a position to control a Japanese broadcasting licence holder. In response to this criticism, indirect foreign ownership of terrestrial broadcasting licence holders was prohibited. In contrast, all restrictions on foreign investment in cable television providers were lifted by 1999, and as discussed supra, in 2002, foreign-owned entities became eligible to obtain third-party facility broadcast licences. As a result, several foreign-owned broadcasters now broadcast into Japan through cable television and third-party satellites, including the BBC, Disney and Bloomberg. iv Mobile services Video broadcasting service for mobile phones and other mobile devices began in 2006. The service is known as ‘One-Seg’ because it uses one out of the 13 segments that constitute the spectrum bandwidth allocated to each terrestrial digital channel (the other 12 being used for television). Currently, One-Seg service is generally limited to the simultaneous delivery of terrestrial digital television broadcasts to mobile devices. As of July 2009, 85 per cent of the mobile phones sold in the Japanese market were able to receive One-Seg broadcasts, which are currently provided free of charge. VOD services utilising mobile networks are also widely available. Mobile network providers, such as nTT DOCOMO, offer VOD services at a low price to attract subscribers to their network, so they are not a significant revenue source. The nTT DOCOMO-led next-generation multimedia broadcasting service described in Section IV, iii, supra, will provide viewers with higher-definition broadcasts than One-Seg, will allow users to store content to their mobile devices and is also expected to include services such as e-readers and navigation systems. High-speed mobile networks provide the best support for mobile media services. In Japan, 3G service is already used by 98 per cent of wireless customers, and 3.9G services will become widely available by the end of 2012, following the reallocation of the analogue television spectrum for that purpose. The maximum data transmission speed for mobile devices will increase from 7.2Mb/s using 3G service to 20 to 100Mb/s using 3.9G service.

VI SECURITY i Privacy and consumer protection The Law Concerning the Protection of Personal Information (‘the Privacy Act’) protects personal information or data that can be used to identify specific living persons, and generally applies to any entity that gathers the personal information of 5,000 or more individuals. Under the privacy act, such entities are required to draft and publish a ‘purpose of utilisation’ regarding their use of personal information. Personal information incorporated into a database must be kept accurately, and necessary and proper measures

181 Japan to maintain its security must be instituted. Any person about whom personal data is kept in a database for more than six months has a right to request access to the data, and add to, modify or delete it. Further, MIC has issued Privacy Act guidelines specific to telecommunications businesses. although MIC guidelines are non-binding, telecommunications business licence holders consistently abide by them. Since MIC guidelines also take into account the obligations of telecommunication business licence holders to preserve the secrecy of communications, they effectively mandate a more stringent data protection regime than would apply under the privacy act alone. MIC guidelines generally prohibit telecommunication businesses from collecting information related to race, religion, disability or other attributes that may form a basis for discrimination. The guidelines also require such licence holders to specify what length of time they intend to retain personal information and to delete any personal information after the expiration of such period. Under MIC’s Privacy Act guidelines, information related to persons making or receiving communications, such as usage history, identity, and user location, may only be disclosed to third parties in very limited circumstances, such as disclosure pursuant to a search warrant. The application of these guidelines to ‘behavioural advertising’ has been an area of recent debate. This sort of advertising targets specific Internet users based on their previous usage behaviour, gleaned from data packets transferred to and from the user. In a research paper regarding behavioural advertising, MIC’s Research Group on Information Technology from the User Perspective took the position that typically, information collected for behavioural advertising (such as information collected by an online vendor on its customers’ page views, purchase history and user location) does not generally identify the user and, therefore, does not fall into the definition of personal information protected under the Privacy Act. However, the report states that behavioural advertising that utilises ‘deep packet’ inspection (such as intercepting data passing through networks) would infringe upon the secrecy of communications without a user’s prior consent. The report further states that consent to behavioural advertising within the general ‘clickwrap’ terms and conditions for web-based telecommunication services is not sufficient, and that express consent should be required for the use of behavioural advertising programmes utilising deep packet inspection technology. ii Protection for children A new statute for the protection of children from harmful Internet content, known as the Youth Internet Environment Act, became effective in April of 2009. The statute directs governmental bodies to improve Internet safety for juveniles (those under the age of 18) by encouraging ISPs to use technologies that limit juvenile access to harmful content. The statute targets content glorifying crime or suicide, obscene sexual content, and other depictions of extreme violence or cruelty. The statute further exhorts parents to monitor their children’s Internet use, and to limit their access to inappropriate content by using filtering software and other appropriate measures. The statute requires mobile network service providers to filter Internet content for customers that are juveniles, except where a parent has expressly requested that filtering not be used. Also under the Act, from April 2010, manufacturers of devices with Internet connectivity (other than

182 Japan mobile phones) are required to preinstall filtering software or otherwise facilitate the use of third party filtering software or services. The Act on Punishment of Activities Relating to Child Prostitution and Child Pornography and the protection of Children, originally passed in 1999, prohibits the distribution of child pornography. This Act was amended in 2004 to outlaw the uploading and distribution of child pornography over the Internet. In 2008, a group of lawmakers proposed a further amendment to the Act to criminalise the possession of child pornography, including computer downloads, and to require ISPs to filter child pornography. The amendment has not yet passed the national legislature due to concerns that it could open the door to broader censorship of Internet content. While the amendment is under consideration, the Japanese government adopted a policy to encourage ISPs to voluntarily block web sites and other Internet-based providers of child pornography. iii Cybersecurity In Japan, cyber crime has long been an area of public concern. Japanese law enforcement has focused efforts to combat cyber crime on (1) computer hacking through the unauthorised use of IDs and passwords, and other attacks on security holes, (2) the distribution of computer viruses, and the input of data and unauthorised commands that can cause damage to computers and data, and (3) other types of crimes facilitated through the Internet, such drug trafficking, prostitution and fraudulent Internet auctions. The National Police Agency is responsible for Japan’s cybersecurity. It established a cybersecurity department in 1997, and issued a comprehensive information security policy in 2000. The National Police Agency also established a cyber terrorism department, known as the Cyber Force Centre in 2001, which monitors network information flows from nine offices around Japan. In 2005, the Cyber Force Centre became a member of the Forum of Incident Response and Security Teams, an international information sharing network for computer incident response organisations. iv Emergency response networks There is no dedicated network for communication with emergency responders, such as police, fire fighters and paramedics, at times of disaster. Instead, such communication must go through commercial networks. Under the Telecommunications Business Act, NTT group is required to provide universal service for calls to emergency responders. The Telecommunication Business act requires telecommunications business licence holders, including wired and mobile phone carriers, to prioritise emergency communications. In the case of a disaster, priority is given to communications necessary for evacuations, search and rescue operations, the routing of telecommunications and electricity, and the maintenance of social order.

VII YEAR IN REVIEW

The most significant legal development for Japan’s media and telecommunications sector this year was the introduction of a new bill to amend and consolidate several media and telecommunications laws, commonly referred to as the Broadcast act amendments.

183 Japan

The bill was first presented to the national legislature in March, but did not achieve final passage for parliamentary reasons due to the replacement of the prime minister, but will be reintroduced by MIC for debate later in the year. The bill’s highlights include the following: a A streamlined broadcast licensing regime. Currently, terrestrial broadcasting licences and licences to broadcast through satellites, cable and broadband networks are granted by MIC under different statutes using different procedures. The proposed bill would consolidate the licensing provisions of those statutes into the Broadcast Act, placing broadcasting into two major licensing categories of ‘core broadcasting’ (terrestrial, BS and certain communication satellites) and ‘general broadcasting’ (other communication satellites, cable and IPTV), and unifying the licensing procedures for various categories of licences. b Separation of programming licences from transmission licences. Currently, terrestrial broadcasting licences are granted only to broadcasters that provide their own broadcast content and operate the wireless transmission facilities used to distribute it. Under the proposed Amendments, broadcasters would be able to distribute their programming through third-party terrestrial wireless transmission facilities, just as they currently can distribute programming by satellite and cable using third-party facility broadcast licences. c A streamlined infrastructure licensing regime. Specialised statutes currently regulating cable television facilities and wired radio broadcast facilities will be consolidated into the Wire Telecommunications Act. As a result, all wired telecommunication infrastructure will be regulated under a single statute. Furthermore, while a licence is currently required for a wireless transmission station or device that emits radio waves exceeding 0.01 watts, the proposed bill increases the threshold to 1.00 watt. The proposed bill also creates a new type of licence for mobile phone carriers that would cover multiple mobile phone base stations. d Creation of dual broadcasting and telecommunication licences. Under an amendment to the Radio act, MIC will be able to grant a single wireless transmission licence for both broadcasting and telecommunications. e Ownership concentration restrictions. Ownership of multiple broadcast outlets is currently restricted by MIC regulations, not by statute. The proposed amendment to the Radio Act will provide a statutory basis for the restrictions and limit MIC discretion in this area.

The other significant story in the sector over the past year has been the much anticipated decision on what technology Japan will embrace to build out its next-generation multimedia broadcasting network using the retired analogue television spectrum. Political pressure on MIC to force a marriage of NTT DOCOMO and KDDI to jointly build the network, despite their vastly different technological visions, is cause for concern. However, MIC’s ability to reach a clear-cut result in the face of political pressure bodes well for its ability going forward to place economic and technical considerations above political ones in making important decisions that affect Japan’s media and telecommunications sector.

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VIII CONCLUSIONS and OUTLOOK

Mobile services on the 3.9G network are expected to first become available later this year, and the abandonment of analogue television broadcasts in favour of digital broadcasts will take place in 2011. While such changes risk exacerbating Japan’s digital divides between rich and poor and young and old, they will result in more effective spectrum use and will improve the quality and selection of media and telecommunications offerings for the majority of Japanese users. The government’s efforts to rationalise the media and telecommunications regulatory regime through the Broadcast Act Amendments, and to facilitate the adoption of new technologies by reallocating spectrum and encouraging broadband access, represent positive steps. These efforts, however, would be more effective if MIC and Japan’s lawmakers were to operate with greater decisiveness and increased transparency.

185 Chapter 23

United Kingdom

Omar Shah and Gail Crawford *

I INTRODUCTION

The establishment of the Office of Communications (‘Ofcom’) and the entry in force of the Communications Act 2003 (‘the Act’) fundamentally altered the UK communications landscape. The Act mirrored the technological neutrality of the EU regulatory framework (i.e., that all transmission networks and the provision of services should be covered by a single regulatory framework). It also reflected the EU’s desire progressively to eliminate ex ante sector-specific regulation in the largely liberalised communications markets. In addition, the creation of Ofcom saw the consolidation of a patchwork of five previously distinct regulators with authority over telecommunications and broadcasting into a single unified regulator. Ofcom’s current priorities are set out in its 2010–11 Annual Plan.

II REGULATION

Ofcom is the independent communications regulator in the UK. The Department for Business, Innovation and Skills (‘BIS’) remains responsible for the formulation of certain high-level policy but most key policy initiatives are constructed and pursued by Ofcom. Ofcom has largely delegated its duties for radio and TV advertising to the Advertising Standards Authority (‘ASA’) and a number of new regulatory bodies have been established within the ASA (such as the Broadcast Committee of Advertising Practice). Ofcom’s specific duties fall into six main areas: a ensuring the optimal use of the electro-magnetic spectrum;

* Omar Shah and Gail Crawford are partners in Latham & Watkins. The authors would like to acknowledge the kind assistance of their colleagues Niall Collins, Justin Cornish, Júlia Samsó, Nicola Webb and Simon Yeung in the preparation of this chapter. Available at www.ofcom.org.uk.

290 United Kingdom b ensuring that a wide range of electronic communications services – including high-speed data services – is available throughout the UK; c ensuring a wide range of TV and radio services of high quality and broad appeal; d maintaining plurality in the provision of broadcasting; e applying adequate protection for audiences against offensive or harmful material; and f applying adequate protection for audiences against unfairness or the infringement of privacy.

The relatively recent formation of the Body of European Regulations in Electronic Communications (‘BEREC’) is also expected to play a significant role in the future. BEREC replaces the European Regulators Group and will act as an exclusive forum and vehicle for cooperation between NRAs and between NRAs and the European Commission (‘the Commission’). The prevailing regulatory regime in the UK is contained primarily in the Act, which entered into force on 25 July 2003. Broadcasting is regulated under a separate part of the Act, in conjunction with the Broadcasting Acts of 1990 and 1996. Other domestic legislation also affects this area, in particular: the Wireless Telegraphy Act 2006; the Digital Economy Act 2010; the Data Protection Act 1998; the E-Privacy Regulations; the Freedom of Information Act 2000; the Regulation of Investigatory Powers Act 2000; the Enterprise Act 2002; and the Competition Act 1998. No foreign ownership restrictions apply to authorisation to provide telecommunications services, although the Act directs that the Secretary of State for Business, Innovation and Skills (a government minister – ‘the Secretary of State’) may require Ofcom to suspend or restrict any provider’s entitlement in the interests of national security. In the context of media regulation, although the Act and the Broadcasting Acts impose restrictions on the persons that may own or control broadcasters, there no longer exist any rules that prohibit those not established or resident in the EEA from holding broadcasting licences. i Mergers and acquisitions The UK operates a voluntary merger control regime (i.e., there is no requirement to seek clearance prior to completing a merger in the UK). The two main administrative bodies involved in UK merger control are the Office of Fair Trading (‘the OFT’) and the Competition Commission (‘the CC’). The OFT is the primary competition regulator in the UK and is responsible for monitoring merger activity generally and for conducting first-stage merger control reviews, while the CC is tasked with conducting the second stage of the merger review process. Although, the OFT may consult Ofcom when considering transactions in the broadcast and telecommunications markets, it has not specifically sought views from Ofcom when considering newspaper

However, note that changes in control of certain radiocommunications and TV and radio broadcast licences arising as a result of mergers and acquisitions may in certain circumstances require the consent of Ofcom.

291 United Kingdom transactions. However, the OFT has recently stated that it now intends to consult with Ofcom on future media mergers involving newspaper publishing. The Secretary of State also retains powers under the Enterprise Act to intervene in certain merger cases. These include cases that involve ‘public interest considerations’. In the context of media mergers, such considerations include, for example, the need to ensure sufficient plurality of persons with control of media enterprises serving UK audiences, the need for the availability throughout the UK of high-quality broadcasting calculated to appeal to a broad variety of tastes and interests and the need for accurate presentation of news, plurality of views and free expression in newspaper mergers.

III INTERNET AND IP-BASED SERVICES i Internet and internet protocol regulation As previously noted, the Act is technology-neutral and as such there is no specific regulatory regime for Internet services. ISPs are ECNs or ECSs depending on whether they operate their own transmission systems and are entitled to provide services under the Act in compliance with the general conditions and, where applicable, specific conditions. VoIP and VoB services are specifically subject to a number of general authorisation conditions under the Act, such as those related to emergency call numbers. Several aspects of the provision of Internet services are currently being reviewed at UK level following the recently adopted revised European Framework for Electronic Communications Regulation (‘the Revised Framework’). Although historically the line taken by the Commission has been that of net neutrality, the Revised Framework has adopted a range of measures designed to prevent the degradation of services and the hindering or slowing of traffic. The changes at EU level must be transposed into UK law by June 2011. Currently, ISPs have reporting requirements to Ofcom as regards their traffic management practices under the voluntary code of practice published by Ofcom and adopted by the UK Internet Service Providers’ Association. However, in view of the transposition deadline of June 2011, Ofcom has opened a consultation process in collaboration with BEREC on traffic management and net neutrality. ii Universal broadband service During the recent UK general election, the major parties fought over the delivery of the universal broadband commitment and the next stage of super-fast broadband. The previous Labour government had set a target of universal access of 2Mb/s broadband for all by 2012. However, in July of this year, the new coalition government publicly stated that the deadline was impractical and it would be 2015 before every home in the UK had at least a 2Mb/s broadband connection. The development of super-fast broadband will require the roll-out of fibre-optic cable throughout the UK telecommunications network infrastructure. On 23 March 2010, Ofcom published proposals to promote competition and investment in current and super- fast broadband services. In this connection, Ofcom proposes to allow competitors to have access to a dedicated virtual link over new fibre lines laid by BT (termed virtual unbundling,

292 United Kingdom a form of active access where other communications providers use an Openreach product – from BT’s operationally separate business unit – to provide a service to customers). The proposals would give physical access to BT’s underground ducts and overhead telegraph poles and allow other communication providers to lay their own fibre – essentially a form of passive access where other providers could combine their own electronics with physical infrastructure rented from BT. However, Ofcom proposes that BT should be able to set prices for these new wholesale products to enable it to make a fair rate of return and to promote investment. The previous government had assigned approximately £250 million from the digital switchover fund to pay for its universal service obligation and expected the communications sector to take the lead in rolling out superfast broadband, even though companies such as BT have warned that it is not economically viable to extend super- fast broadband across the whole of the UK. iii Content regulation and protection The Digital Economy Act gives power to the Secretary of State to impose obligations on ISPs to limit the Internet access of subscribers who engage in online copyright infringement. In particular, ISPs must send notifications to their subscribers following receipt of reports of copyright infringement from copyright owners. They must also record the number of reports made against their subscribers and provide copyright owners, on request, with an anonymised list that enables the copyright owner to see which of the reports it has made are linked to the same subscriber (also known as the copyright infringement list). The Digital Economy Act also gives Ofcom duties to draw up and enforce a code of practice governing suspension of Internet access as well as subscribers’ rights of appeal. At the time of writing, Ofcom has opened a consultation process and is due to produce a code in early 2011.

IV SPECTRUM POLICY i Development The Framework Directive and the Authorisation Directive, part of the Telecoms Reform Package, requires the neutral allocation of spectrum in relation to the technology and services proposed by the user (for example, mobile network operators and radio broadcasters). Following on from the Telecoms Reform Package, the Commission required Member States to adopt measures including greater neutrality in spectrum allocation, the right of the Commission to propose legislation to coordinate radio spectrum policy and to reserve part of the spectrum from the digital dividend (from the switchover to digital television services) for mobile broadband services through the Better Regulation Directive and the Citizens’ Rights Directive. In the UK, Ofcom is responsible under the Act for the optimal use of the radio spectrum in the interests of consumers. This includes, inter alia, monitoring the airwaves to identify cases of interference and taking action against illegal broadcasters and the use of unauthorised wireless devices.

293 United Kingdom ii Flexible spectrum use As the uses of the radio spectrum have increased, so the allocation of spectrum by the regulator has developed from a centralised system, where use was determined by the regulator, to a market-based approach, where users compete for spectrum. Currently, auctions are the primary market tool used to implement the allocation. Spectrum trading was introduced in the UK for the first time in 2004 and is permitted under the Wireless Telegraphy Act and the associated regulations. Broadly, the trading of spectrum is subject to a multi-stage process that, inter alia, requires a decision by Ofcom whether to consent to the trade. On 22 September 2009, Ofcom published a consultation document on proposals to streamline the spectrum trading process to make the spectrum market more dynamic and efficient. Following the consultation process, Ofcom concluded that it should proceed to simplify the transfer process, in particular, by removing the need to obtain its consent for proposed trades in most cases (Ofcom will consider whether its consent should be required for some or all trades of 2G and 3G spectrum at the time of making these licences tradeable). Ofcom also plans to simplify the process for time-limited transfers and to introduce spectrum leasing in line with the revised Framework Directive. The new spectrum trading rules are subject to further Ofcom consultations but are expected to be introduced in or around 2011 in line with the timetable for implementation of the changes in the EU regulatory framework. iii Broadband and next-generation mobile spectrum use The restrictions on the current 2G licences are expected to be lifted to allow the spectrum to be used for 3G services. Ofcom is also expected to amend the terms of current 3G licences so that the licences become indefinite and users are permitted to trade spectrum. The reason behind these changes is to enable the current users to invest in their 3G networks with a degree of certainty at a time when capital expenditure is under pressure. In return, the users will pay an annual fee (which Ofcom has yet to determine) from 2021, when the current licences are due to expire. Looking ahead, Ofcom is assessing the market for 3G and 4G services so it can prepare and design the auction of spectrum that will be made available following the switchover from analogue to digital television transmission. The switchover is being phased in and is expected to be complete by 2012. iv Spectrum auctions and fees The plans to auction off the bandwidth from the digital dividend have been much delayed. The current government has recently laid a draft Order before Parliament that sets out a number of directions to Ofcom, relating to the auction and liberalisation of the 2.6Ghz and 800MHz bands. Ofcom is also required to carry out a competition assessment of the 3G and 4G markets to inform the design of the auction. The draft Order also refers to changes to the terms of spectrum currently allocated to 2G services. The proposed changes include allowing 3G services and the trading of licences, with a revision of the licence fees to reflect their full market value. It is also proposed that 3G licences become tradeable with fees revised to account for their full market value applying from 2021 when the licences in their current form expire.

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V MEDIA i Digital content and convergence The UK media and entertainment industry continues to feel the impact of the advent of digital content and converged media platforms. The transition away from traditional forms of media distribution and consumption towards digital converged media platforms is changing the commercial foundations of the entertainment and media industry in the UK. Politicians, lawyers, economists and members of the industry are all grappling with new business models to monetise content and control frameworks to provide sufficient protection for the rights of content creators and consumers alike. ii Digital switchover ‘Digital switchover’ is the government’s nationwide programme to move all television services from analogue to digital between 2008 and 2012. Ofcom’s role in the switchover process includes licensing the broadcasters, planning the use of the radio spectrum and assisting on coverage issues. Ofcom’s wider role includes how best to use the spectrum (approximately 800MHz) that is freed up as a result of the digital switchover. This additional spectrum is critical for mobile operators to ease the demand caused by heavy video and data traffic carried on converged media devices such as iPhones and Blackberries. In August 2010, Everything Everywhere, the parent company of the newly merged UK operations of Orange and T-Mobile, lodged a complaint with the Minister of Communications that the approach to the auction of the additional spectrum was likely to have an adverse effect on competition in the mobile telecommunications market for years to come. At the time of writing, the Minister of Communications had instructed Ofcom to carry out a brief assessment of competition in the industry and to prepare rules for the auction, which is scheduled for late next year. The proposal would then require further approval by parliament. iii Internet-delivered media and entertainment content Digital content has driven new forms of consumption of, and interaction with, media and entertainment content in the UK. This is primarily taking place on the Internet and, as in other parts of the world, the UK has seen a rapid rise in the use of IPTV and Web 2.0 on converged media platforms.

Web 2.0 Web 2.0 is characterised as facilitating communication, information sharing, interoperability and collaboration for users on the Internet. Users are empowered and encouraged to play a more active role in the creation and consumption of content which has given rise to the concept of user-generated content (‘UGC’). UGC has created issues of liability and ownership which are being considered in legislation (see the references to the Digital Economy Act discussed in Section III, iii , infra) and in court. Given recent US authority suggesting that a provider of Web 2.0 content will not be liable for copyright

Wikipedia.

295 United Kingdom infringement if it removes material from its site when notified by the copyright owner, it will be interesting to see how the Digital Economy Act is interpreted in the UK over the next 12 months in light of the approach in the US.

IPTV IPTV typically describes a platform that allows users to stream television content using the Internet or via mobile telephone networks. The key benefit of IPTV is that it allows a user to interact with the content because data can flow both ways in an IP network. IPTV is growing rapidly in the UK and is predicted to continue this growth, particularly in light of the new spectrum being made available as a result of the digital switchover. IPTV is being made available by a range of content providers in the UK, including public broadcasters (BBC’s iPlayer, ITV’s ITV Player, Channel 4’s 4oD), cable and satellite providers (both Virgin Media and BSkyB offer broadband-based VOD products), fixed-line operators, ISPs, online aggregators and websites. To further facilitate user access to IPTV, the BBC, ITV, Channel 5 and BT have collaborated on an open technology offering so that viewers with Freeview or Freesat and a broadband connection can access catch up and on-demand programming via their television from online services such as the iPlayer. This initiative has been called ‘Project Canvas’. In June 2010, the BBC Trust (the BBC’s independent regulator) gave its approval to Project Canvas and the Office of Fair Trading found that it did not give rise to a merger qualifying for substantive investigations. However Project Canvas is now being investigated by Ofcom under its competition law enforcement powers following a complaint by Virgin Media.

VI SECURITY i Privacy and consumer protection In the UK, consumers’ personal data is primarily protected by the Data Protection Act 1998 (‘the DPA’), which implements the EU Data Protection Directive and the Privacy and Electronic Communications (EC Directive) Regulations 2003 (‘the E-Privacy Regulations’), which implement the EU Directive on Privacy and Electronic Communication (‘the E‑Privacy Directive’). The DPA is based around the principles in the Directive that impose strict controls on the processing (including disclosure) of personal data including: a providing one or more listed conditions that must be met to ensure personal data is processed fairly and lawfully; b the requirement that data can generally only be processed for the purpose for which is was obtained, must be kept accurate and up to date and for no longer than is necessary;

Viacom International Inc v. Youtube Inc, 07-cv-02103, US District Court, Southern District of New York (Manhattan). Directive 95/46/EC. Directive 2002/58/EC.

296 United Kingdom c the requirement that data be kept secure (i.e., be protected against unlawful processing and against accidental loss, destruction or damage); and d the restriction that data cannot be transferred to countries outside the EEA unless certain conditions are met.

The restrictions in the DPA can affect the ability of a business to disclose information to third parties, including public bodies, unless certain conditions are met. The E-Privacy Regulations introduced further rules for the electronic communications sector including: a controls on unsolicited direct marketing; b restrictions on the use of cookies; and c rules on the use of traffic and location data.

The Office of the Information Commissioner (‘ICO’) is responsible forthe implementation and enforcement of both the DPA and the E-Privacy Regulations as well as the Freedom of Information Act (which provides individuals with the ability to request disclosure of information held by public authorities). The ICO generally adopts a pragmatic approach to the implementation and enforcement of the EU Directives, perhaps taking a more balanced view of the commercial reality of the international business community than some other European regulators. The role of ICO has changed over the past 10 years, with an increasing focus on enforcement, bolstered in April 2010 by increased powers that enable the ICO to impose fines directly of up to £500,000 (whereas previously enforcement notices had to be issued and fines could only be imposed if these were breached). The most common ground for large fines and enforcement action is loss of data. The ICO takes a serious view of loss of unencrypted data. Where financial institutions are involved, the ICO often works in conjunction with the FSA. By way of example, Zurich was fined a record £2.3 million by the FSA in August 2010 for loss ofan unencrypted back-up tape. Individual data subjects have the right under the DPA to notify a data controller to cease or not to begin processing their personal data for the purposes of direct marketing. Under the E-Privacy Regulations, an organisation must obtain prior consent before sending a marketing message by automated call, fax, e-mail, SMS text message, video message or picture message to an individual subscriber. There is a limited exemption for marketing by electronic mail (both e-mail and SMS) that allows businesses to send electronic mail to existing customers provided (1) they are marketing their own goods or services; (2) such goods and services are similar to those that were being purchased when the contact information was provided; and (3) the customer is given a simple opportunity to opt out free of charge at the time the details were initially collected and in all subsequent messages. Under the E-Privacy Regulations, location data (any data that identifies the geographical location of a person using a mobile device) can be used to provide value- added services (e.g., advertising) only if the customer has given prior consent. Use of cookies for targeted advertising is currently a topic of much debate in Europe. Currently, in the UK, cookies or similar devices cannot be used unless the user of the relevant terminal equipment is given clear and comprehensive information about

297 United Kingdom the reasons for storing and accessing the information collected by the cookie. The user must be able to refuse the storage of, or access to, information collected by cookies including by using browser settings. In October 2009, the EU introduced an amendment to the E-Privacy Directive that stated that cookies or similar devices may not be used unless the user has given his or her consent. Recent guidance from the Article 29 Working Party (a group comprising all the EU regulators) has indicated that it interprets this in the context of behavioural advertising as requiring positive consent when an end-user first accepts a cookie (and such consent would need to be renewed at least every 12 months). Member States have to implement the new law by May 2011. However, it is not clear whether the UK will follow the recommendations of the Working Party. To date the ICO has made no announcement that it intends to change its current practice.

Data retention, interception and disclosure of communications data Public Communications Providers (e.g., providers of fixed-network telephony, mobile telephony and Internet access, Internet e-mail or Internet telephony) must retain traffic, subscriber and, where relevant, location data for a period of 12 months. No data revealing the content of the communication can be retained. The Regulation of Investigatory Powers Act 2000 (‘RIPA’) imposes a general prohibition on the interception of communications without the consent of both the sender and recipient, unless a warrant is issued by the Secretary of State. Interception warrants can be requested by a limited number of individuals heading various security and law enforcement bodies, HMRC or by another state under a mutual assistance treaty. The grounds for issuing warrants are that the interception is in the interests of national security, for the purpose of preventing or detecting serious crime or for the purpose of safeguarding the economic well-being of the UK. Public telecommunications service providers who provide (or intend to provide) services to more than 10,000 users may be required to maintain interception capabilities on receipt of a notice from the Secretary of State. In certain circumstances, contributions will be made towards the costs of implementing intercept capabilities or responding to warrants. There is a similar prohibition on the disclosure of communications data (e.g., subscriber, traffic and location data), however, no warrant is needed to allow disclosure. Disclosure can be made on request by a far wider range of public bodies and the grounds on which requests can be made are far broader, including that the request is in the interests of public safety, for the purpose of protecting public health or for the purpose of assessing or collecting any tax, duty, levy or other imposition, contribution or charge payable to a government department. At the time of writing the Commission has announced that it intends to refer the UK to the EU’s Court of Justice for failing to fully implement the EU Data Protection Directive and the E‑Privacy Directive. The Commission has previously written to the UK government on a number of occasions demanding that UK law be amended to fully

Section 4 of the Data Retention (EC Directive) Regulation 2009. Regulation of Investigatory Powers (Maintenance of Interception Capability) Order 2002.

298 United Kingdom implement the EU Directives. The case also appears prompted by the UK government’s response to the Phorm Internet monitoring scandal. Significant numbers of Internet users had complained to the UK authorities that the use of Phorm’s technology had recorded their Internet activity and made them a target for behavioural advertising campaigns without their consent. The complaints were investigated by the UK Information Commissioner but no laws were found to have been broken; however, questions were asked as to whether relevant UK laws were robust enough. The Commission has stated that existing UK laws governing the confidentiality of electronic communications are in breach of the UK’s obligations under the EU Directives in three specific areas: a There is no independent national authority to supervise the interception of some communications, despite the establishment of such authority being required under the EU Directives. b Current UK law authorises interception of communications not only where the persons concerned have consented to interception but also when the person intercepting the communications has ‘reasonable grounds for believing’ that consent to do so has been given (which the Commission contends does not comply with EU rules defining consent as ‘freely given, specific and informed indication of a person’s wishes)’. c Current UK law prohibiting and providing sanctions in the case of unlawful interception is limited to ‘intentional’ interception only whereas EU law requires Member States to prohibit and to ensure sanctions are imposed against any unlawful interception regardless of whether it is committed intentionally.

The Commission’s referral will be accompanied by a proposal on financial sanctions (lump sum or penalty payment) but the final decision on the imposition of financial sanctions lies with the Court of Justice. ii Protection for children Currently, there is no specific legislation protecting children online. In relation to the collection of personal data from children online, the Information Commissioner has indicated that consent of a parent or guardian will normally be necessary to collect personal information from children under the age of 12. However, whether consent will be valid will depend on the complexity of the data usage and the degree of risk associated with sharing the information in question. Parental or guardian consent is recommended by the ICO when the collection of information from children is likely to result in: a disclosure of the child’s name and address to a third party, for example, as part of the terms and conditions of a competition entry; b use of a child’s contact details for marketing purposes; c publication of a child’s image on a website that anyone can see; d making a child’s contact details publicly available; or e the collection of personal data about third parties; for example, where a child is asked to provide information about his or her family members or friends.

ICO’s Personal Information Online – Code of Practice.

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The Child Exploitation and Online Protection Centre (‘CEOP’) works to prevent exploitation of children online; it is affiliated to the Serious Organised Crime Agency and is made up of a large number of specialists who work alongside police officers to locate and track possible and registered offenders. CEOP also offers training, education and public awareness in relation to child safety online. Website operators are encouraged to provide hyperlinks to information for parents and guardians (e.g., currently some social networking service providers now offer ‘panic-buttons’ that link directly to the CEOP online reporting and advisory services, which enables parents and children to report, and access advice on, cyber bullying, harmful content and sexual behaviour). Website and software operators may also apply for the Kitemark for Child Safety Online. This has been developed through a collaboration between BSI (the UK’s national standards body), the Home Office, Ofcom and representatives from ISPs and application developers. BSI will test Internet access control product, services, tools and other systems for their ability to block certain categories of websites (e.g., sexually explicit, violent, or racist activity). The Home Office’s ‘Good practice guidance for the providers of social networking and other user interactive services 2008’ recommends that websites should offer easy to use privacy settings and when dealing with child website visitors (those under 18 years old), these privacy settings should be set to the maximum protection level by default. iii Cybersecurity The Computer Misuse Act 2000 (as amended by the Police and Justice Act 2006) sets out a number of provisions that make hacking and any other forms of unauthorised access as well as the denial of service attacks and the distribution of virus and other malicious code criminal offences. Further offences exist where an individual supplies ‘tools’ to commit the aforementioned activities.

VII YEAR IN REVIEW

In October 2009, Ofcom set out its plans for how the airwaves will be managed during the London 2012 Olympic and Paralympic Games.10 In summary, Ofcom intends to source the required spectrum in four main ways: a by borrowing spectrum on a short-term basis from public bodies (such as the Ministry of Defence); b by encouraging more efficient use of civil spectrum; c making use of spectrum freed up by the digital switchover; and d using licence-exempt spectrum.

In November 2009, Ofcom announced revised rules to strengthen audience protection in the use of premium rate telephone services in TV and radio programmes. The changes to Ofcom’s Broadcasting Code mean that premium rate services (‘PRS’) may only be

10 Ofcom’s full statement can be found at www.ofcom.org.uk/consult/condocs/london2012/ statement/.

300 United Kingdom included in editorial TV and radio programmes (such as phone-in competitions) where they are related to the main editorial purpose of the show. Where broadcasters wish to promote PRS more extensively, Ofcom considers that this will be viewed as advertising and, accordingly, will be regulated under the Advertising Code. In the same month, Ofcom published a discussion document to explore the potential of new technology that can link up different devices and offer enhanced broadband access in rural areas. The technology works by searching for unoccupied radio waves called ‘white spaces’ between TV channels to transmit and receive wireless signals. In comparison with other forms of wireless technology, such as Wi-Fi and Bluetooth, white space devices are being designed to use lower frequencies that have traditionally been reserved for TV. To be a viable proposition, white space devices will first have to prove that they can operate without interfering with TV broadcasts and other wireless technologies that share these frequencies (such as wireless microphones). In December 2009, Ofcom published its revised 2009 Broadcasting Code, which sets rules for TV and radio broadcasts. The main revisions involve a clarification of parts of the Broadcasting Code to help broadcasters avoid compliance failures, particularly in relation to audience competitions and voting, and the broadcast of sexual material. The changes to the Broadcasting Code also incorporate the requirements of the European Audiovisual Media Services (AVMS) Directive. In March 2010, Ofcom published a consultation document on wholesale local access and wholesale broadband access market reviews. Declining advertising revenues and the restrictive effect of regulatory constraints have led to an uncertain future for many local radio stations in the UK. However, new provisions in the Digital Economy Act allow Ofcom to take a number of steps to ease the pressure on local radio stations. From June 2010, local FM stations will be able to apply to Ofcom to co-locate and share all of their programming within approved areas, which will allow the stations to merge to form larger and more financially viable stations. In addition, local AM stations can ask Ofcom to release them from the requirement to provide locally made programming (except for the existing licensing requirement to produce 10 hours a day of daytime programming on weekdays from within their home nation). Operators of DAB local and regional multiplexes may also request changes to the areas they serve, so as to bring local DAB to new areas and increase the viability of multiplexes. In June 2010, Ofcom published a discussion paper on net neutrality (with a view to addressing how its existing and future powers might be used to address traffic management concerns and what position Ofcom should take on any potential anti- competitive discrimination. The net neutrality debate is at a relatively early stage in the UK with Communications Minister Ed Vaizey commenting recently that net neutrality was an issue ‘we’ll have to address’ and that the UK government was ‘in receive mode’ on the issue. Ofcom Chief Executive Ed Richards recently stated that: … [Ofcom’s] initial stance in this debate is that consumer transparency must be guaranteed wherever traffic management occurs. Consumers need to have information available to them. They need to know what policy their internet provider applies, and how this affects the service they receive. In a competitive market, they can then exercise choice including this criterion.

Mr Richards intimated that he sees the ideal solution to the complex regulatory issues involved as being the use of a combination of appropriate ex ante regulation and ex post

301 United Kingdom competition law enforcement, with the scope to apply tough but targeted competition powers to genuine abuse, while also securing consumer transparency through the instruments available to Ofcom. Ofcom commenced an investigation into the pay-TV market in March 2007 after receiving a submission from BT, Virgin Media, Setanta and Top-Up TV. On 4 August 2010, Ofcom asked the CC to investigate concerns regarding the sale and distribution of subscription premium pay-TV movies. The referral to the CC relates to two specific movies markets: the rights to movies sold by the major Hollywood studios to broadcast for the first time on pay-TV and the wholesale supply of pay-TV packages containing movies channels which are based on those rights. The CC has a maximum of two years to investigate and reach a decision on the concerns raised by Ofcom.

VIII CONCLUSIONS AND OUTLOOK

The UK has already liberalised its communications sector further and faster than most other EU Member States. With the new government’s commitment to make deep cuts across government to redress excessive public deficits, we will likely see some retrenchment in regulatory initiatives in the coming year, except where such initiatives offer the possibility of raising additional revenue for deficit reduction.

302 Chapter 24

United States

Karen Brinkmann and Jarrett S Taubman*

I INTRODUCTION

This chapter provides an overview of telecommunications and media regulation in the United States. Given the complexity of such regulation – which is constantly evolving in response to technological advances, market shifts, and political dynamics – this chapter is not intended to be comprehensive. Rather, it is intended to demonstrate the nature and scope of such regulation, and to identify some of the recent legal and policy developments that are shaping the sector.

II REGULATION i Regulators and sources of law Regulation of telecommunications and media in the United States is governed primarily by the following authorities, within parameters established under federal and state statutes and constitutions. The Federal Communications Commission (‘FCC’) is an independent US regulatory agency established by the US Congress pursuant to the Communications Act of 1934, as amended (‘the Communications Act’). The FCC is charged with regulating all non-federal government use of the radiofrequency spectrum, all interstate telecommunications, and all international telecommunications involving an end-point in the United States. Together with the US State Department Office of Communications and Information Policy, the FCC participates in international spectrum negotiations. The National Telecommunications and Information Administration (‘the NTIA’) is an executive agency of the federal government within the US Department of Commerce. The NTIA has primary responsibility for regulating all use of the radiofrequency

* Karen Brinkmann is a partner and Jarrett S Taubman is an associate at Latham & Watkins LLP.

303 United States spectrum by federal government users, and works with the FCC to coordinate spectrum use between federal and non-federal users. The NTIA also administers the Broadband Technology Opportunities Program, which, together with the Rural Utilities Service of the US Department of Agriculture, administers a funding programme to promote broadband deployment pursuant to the 2009 American Recovery and Reinvestment Act. Telecommunications within a single US state are governed by individual state regulatory agencies (public utilities commissions or ‘PUCs’), typically having jurisdiction over telephone and electric companies and other ‘public utilities’ providing services within the state. The jurisdiction of the state PUCs over intrastate telecommunications is limited by state constitutions and statutes as well as by federal supremacy. For example, in case of a conflict between FCC and state regulations, the state typically would be preempted, unless the US Congress or the FCC expressly permits the states to enforce divergent regulations. The Federal Trade Commission (‘the FTC’) also protects consumer interests in such areas as online marketing and telemarketing. Both the FTC and the US Department of Justice (‘the DoJ’) Antitrust Division police market concentration by examining mergers and other major transactions in the sector, along with the attorneys general of the states. The judicial branch also plays an important role in US policy-making at both the state and the federal level, reviewing administrative agency decisions for consistency with the governing statutes and reviewing statutory law for compliance with the constitution. ii Federal telecommunications and media law In the US, federal telecommunications law is derived principally from statutes enacted by Congress (and signed by the President) and administrative regulations adopted by the FCC.

The Communications Act The FCC’s governing statute, codified in Title 47 of the United States Code, establishes the framework for federal regulation of telecommunications and media in the United States. The Communications Act consists of seven major sections, or ‘titles’. The most significant of these are Title I (establishing the FCC and defining the scope ofits authority), Title II (governing the activities of telecommunications carriers), Title III (governing the use of radio spectrum, including by wireless carriers and mass media broadcasters) and Title VI (governing cable television operators). The Communications Act was substantially amended by the enactment of the Telecommunications Act of 1996, which opened communications markets in many respects. Section 4(i) of the Communications Act provides that the FCC ‘may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions’. In recent years, the FCC has attempted to use this ‘ancillary’ authority to regulate subject matter outside of the traditional scope of its jurisdiction (e.g., Internet and VoIP services) – although, as discussed infra, these attempts have so far met with mixed results.

304 United States

FCC regulations and orders The Communications Act authorises the FCC to ‘perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with [the Communications Act], as may be necessary in the execution of its functions’. In fulfilling this mandate, the Commission plays a quasi-legislative role by promulgating administrative regulations, after providing notice to the public and an opportunity for public comment, as required by the Administrative Procedures Act. The Commission also plays a quasi-judicial role in interpreting existing law in evaluating any number of disputes and applications (e.g., licence applications and petitions for interpretation of the law). The resulting orders and regulations constitute an extensive body of administrative law governing telecommunications and media in the United States.

Judge-made law Any interested party may seek review of an FCC action in a federal court of appeals. The courts review FCC decision for consistency with the statute. In general, the FCC is entitled to deference in interpreting the Communications Act where it is ambiguous and capable of more than one reasonable interpretation. In addition, the courts review FCC decisions to ensure that are not ‘arbitrary or capricious’ – for example, the FCC may not depart from its own precedent without a reasoned basis for doing so. iii Foreign ownership restrictions Sections 310(a) and (b) of the Communications Act restrict foreign ownership of common carrier, aeronautical, and broadcast spectrum licences, and of US entities holding those licences. For example, foreign individuals and entities may not hold more than 20 per cent of the equity or voting interests in a licensee. In addition, foreign individuals and entities may not, directly or indirectly, hold more than 25 percent of the equity or voting interests in a US holding company of a licensee. (These restrictions do not apply to foreign purchase of debt, warrants or options in US licensees or their holding companies.) The FCC has authority to allow foreign equity ownership in excess of the 25 per cent limit on indirect ownerships of a holding company, and has allowed up to 100 per cent foreign ownership in the case of common carrier licensees. The FCC has found that higher levels of foreign ownership from WTO member states presumptively serves the ‘public interest’. However, the FCC generally will not waive the 25 per cent limit with respect to broadcast licensees. In addition, transactions may be scrutinised by the Executive Branch’s Committee on Foreign Investment in the United States, including staff from the DoJ, the Federal Bureau of Investigation and the Department of Homeland Security, to ensure that foreign ownership of critical US infrastructure does not threaten national security. iv Mergers and acquisitions Under Section 310(d) of the Communications Act, FCC approval must be obtained prior to assigning most types of radiofrequency-based licences, permits or authorisations from one party to another, or transferring ‘control’ of an radiofrequency licensee, permittee, or authorisee from one party to another (there are exceptions for certain pro forma transactions, and certain types of licences). Similarly, under Section 214 of the

305 United States

Communications Act, FCC approval is required prior to an assignment of interstate or international telecommunications authorisations or transfer of control of a US carrier providing interstate or international telecommunications services. Most states have similar requirements applicable to intrastate telecommunications authorisations and the transfer of control of an intrastate telecommunications service provider. In reviewing such applications, the FCC or state typically attempts to gauge whether the application will serve the ‘public interest, convenience, and necessity’ by weighing the expected benefits of the proposed transaction against its expected harms, including the effects on competition and consumers. State statutes sometimes require that other factors, such as the expected effect on jobs in the state. The time frames for obtaining FCC approval in connection with mergers, acquisitions or other major transactions vary widely. The FCC’s non-binding goal is to process combined applications for major transactions within six months, but has exceeded this time frame on many occasions, such as when a transaction poses competitive concerns. More routine transactions often are processed in a shorter period, but there is no guarantee that the FCC will act by any deadline.

III INTERNET and IP-BASED SERVICES i Development of Internet and IP regulation Thus far, the United States has used a light touch with respect to the regulation of ISPs and broadband Internet access providers (‘BIAPs’), relying largely on market forces instead of prescriptive regulation. By many accounts, this ‘hands-off ’ approach has contributed to the rapid growth of the US Internet-based sector over the past 15 years. Nevertheless, recent activity at the FCC suggests that it may soon be playing a more active role in the regulation of Internet-based services. The Communications Act subjects all providers of ‘telecommunications services’ to common carrier regulation; as such, they tend to be heavily regulated by both the FCC and the state PUCs. In contrast, providers of ‘information services’ are not subject to common carrier regulation and are generally lightly regulated at the federal level, as they are considered to be subject to a high degree of competition. State PUC jurisdiction over Internet services is severely circumscribed, as they are considered ‘interstate’ for most purposes. Thus, the classification of a service is of critical importance in determining the regulations applicable to that service. For example, broadband Internet access services require, among other things, the transmission of data between an end user and an ISP, and any number of other individuals or entities. For years, the FCC viewed this transmission capability as a ‘telecommunications service’, and required BIAPs to offer it to competitors on a standalone, common carrier basis. However, in a series of orders issued during the 2000s, the FCC reclassified broadband Internet access services as information services functionally integrated with a telecommunications component, such that BIAPs are no longer required to make the transmission capability available to competitors (unless that capability is offered to the public on a non-integrated, standalone basis). As communications technologies have continued to evolve, the lines between ‘telecommunications services’ and ‘information services’ have blurred, and the FCC has

306 United States been slow to classify new service offerings. The FCC thus far has declined to classify VoIP services, creating uncertainty as to which regulations apply at both the federal and state levels. This uncertainty has been exacerbated by the FCC’s use of its ‘ancillary’ authority to extend a number of common carrier-type requirements to such services, notwithstanding their classification. ii Universal broadband service Recent legislation reflects a renewed interest by Congress in extending the availability of broadband Internet access services to all Americans. For example, the 2008 Farm Bill directs the FCC to submit to Congress recommendations for the rapid roll-out of broadband capacity in rural areas. The Broadband Data Improvement Act includes measures intended to improve data collection and ‘promote the deployment of affordable broadband services to all parts of the Nation’. Perhaps most notably, the American Recovery and Reinvestment Act (‘ARRA’) appropriated up to $7.2 billion to evaluate, develop and expand access to and use of broadband services, and required the Commission to develop the National Broadband Plan to ensure that every American has access to broadband capability. The FCC and NTIA also are jointly responsible for a comprehensive mapping of broadband availability in the US, under the ARRA. The ARRA requires the FCC to propose policies to ensure that every American has access to broadband capability, including Internet access. On 16 March 2010, the FCC released the National Broadband Plan. At almost 400 pages, the plan is intended as a comprehensive blueprint for US broadband policy, and includes a number of recommendations for expanded access to broadband services in areas deemed ‘unserved’ or ‘underserved’ by the FCC’s standards. Initially, the plan recommends that all Americans should have dedicated Internet access at speeds of at least 4Mbits/s downstream and 1MBit/s upstream; the plan also recommends that all Americans should have access to 100Mbits/s transmission capability within 10 years. The FCC has yet to adopt any rule changes implementing these new definitions of broadband, but is seeking comment on numerous proposals to achieve these goals. Among the most significant regulatory changes proposed in the National Broadband Plan is the recommendation that the FCC modify existing ‘universal service’ subsidy programs to target broadband expansion into areas where BIAPs have not found it economically viable to deploy broadband, in the absence of this type of financial support. For example, the FCC is seeking comment on a possible requirement that any recipient of universal service support use it to deploy broadband infrastructure to areas that are currently ‘unserved’. Thus, the FCC might phase out existing support programmes that serve to ensure affordability of rates for basic telephone service in areas where the cost to provide service is above average, and create a ‘Connect America Fund’ to provide narrowly targeted, one-time funding for broadband deployment in areas where it currently is unavailable. The FCC seeks comment on whether any ongoing support would be necessary to keep such networks operational at affordable levels. The FCC also is expected to propose the creation of a ‘mobility fund’ to provide one-time funding for deployment of 3G mobile wireless network capability in areas where it is currently unavailable. Many details remain to be decided, including whether more than one provider in a market would be eligible for funding under either of these funds, how

307 United States long the support would be made available, and whether all technologies would be equally eligible for support. The National Broadband Plan makes only recommendations; the FCC must seek public comment before adopting any new rules to implement the plan, and in some cases the recommendations could not be implemented without new legislation by the US Congress. iii Content regulation and protection In recent years, one of the most significant policy debates at the FCC has focused on an ‘open Internet policy’ or ‘net neutrality’. Although the meaning of ‘net neutrality’ is itself a subject of debate, net neutrality advocates generally aim to constrain the rights of broadband network providers to block, filter or prioritise lawful Internet applications, websites and content. The FCC’s direct involvement with net neutrality policy began in 2005 with its issuance of its Broadband Policy Statement. Although the FCC’s authority under the Communications Act to regulate the Internet was not clearly articulated, the Broadband Policy Statement expressed four principles that the FCC intended to preserve the ‘open’ nature of the Internet for consumers, without discouraging broadband deployment by network operators. The FCC stated that consumers are entitled to: a gain access to the lawful Internet content of their choice; b run applications and use services of their choice, subject to the needs of law enforcement; c connect their choice of legal devices that do not harm the network; and d benefit from competition among network providers, application and service providers, and content providers, all subject to a service provider’s right to engage in ‘reasonable network management.

In the 2008 presidential campaign, then-candidate Obama made ‘preserving the open Internet’ a campaign promise. In late 2009, the FCC proposed that its net-neutrality principles, along with additional requirements of non-discrimination and ‘transparency’, should be codified in rules that the FCC could enforce against certain types of network operators and BIAPs on a case-by-case basis. Meanwhile, in 2008 the FCC ruled that Comcast, the largest US cable TV company, violated the Broadband Policy Statement by inhibiting users of its high-speed Internet service from using BitTorrent and other file-sharing software – a practice Comcast claimed was a type of ‘reasonable network management’ designed to block pirated content and alleviate network congestion. Comcast appealed this decision, arguing, inter alia, that the FCC lacked the statutory authority to adopt or enforce net-neutrality requirements. In early 2010, the US Court of Appeals for the District of Columbia Circuit agreed with Comcast and vacated the FCC’s order. In doing so, the court rejected the FCC’s attempt to rely on its ‘ancillary’ authority as a basis for its enforcement of the Broadband Policy Statement against Comcast, insofar as the FCC had failed to identify a source for such authority in the Communications Act. In the aftermath of Comcast v. FCC, the FCC is evaluating its options with respect to net-neutrality regulation. It is possible that the FCC will attempt to impose net-neutrality regulations under a different jurisdictional theory. Currently, the FCC is considering

308 United States whether to reclassify broadband Internet access services as ‘telecommunications services’, subject to common carrier regulation under the Communications Act, as an alternative basis for jurisdiction. The ‘net neutrality’ debate is likely to result in rules requiring BIAPs to make transparent to the public their internal policies for restricting or prioritising access to the Internet. A critical question for the FCC is what tools will be permissible for BIAPs to address network congestion (such as restricting peer-to-peer file sharing) and whether BIAPs will be permitted to privately negotiate agreements to offer ‘managed services’ and other ‘special arrangements’ that prioritises some types of traffic over others. BIAPs seek the right to charge a premium to high-volume users that threaten to slow transmission speeds and cause network congestion. The FCC consistently has acknowledged that ‘open Internet’ rights only are required for lawful uses of the Internet and lawful content. It remains to be seen how much the FCC’s net neutrality rules will discourage network operators from policing their own networks.

IV SPECTRUM POLICY

Allocation of radiofrequency spectrum for different uses, and assignment to individual users or classes of users (other than federal government users), is one of the FCC’s primary functions. In recent decades, the FCC has favoured market-based solutions for many spectrum allocations and service definitions. The use of spectrum auctions and spectrum leases is one example; mixed-use service definitions is another. i Spectrum allocation and the use of auctions Where spectrum is to be assigned to an individual licensee, and more than one party applies to use such spectrum (mutually exclusive applications are received by the FCC), the FCC may choose from several mechanisms under the Communications Act to designate the ‘winning’ licensee. Most new spectrum assigned since 1993 has been licensed through the use of competitive bidding (i.e., spectrum auctions). The statute excludes certain specific types of spectrum licences (e.g., international satellite, public safety or non-commercial broadcast) from the scope of the FCC’s auction authority, but the FCC has completed or scheduled 89 radiofrequency spectrum auctions to date. Proceeds from the auctions go to the US Treasury. A significant focus of the National Broadband Plan is encouraging the growth of mobile broadband networks, including through access to additional spectrum. The plan recommends allocation of at least 500MHz of spectrum for this purpose, including 120MHz of spectrum that could be reallocated from broadcast television to mobile broadband use, and additional reallocations from other wireless services such as mobile satellite spectrum. This could be accomplished using ‘incentive auctions,’ in which current licensees would surrender spectrum voluntarily in return for a share of the proceeds from the auction of that spectrum for mobile broadband use. The plan concedes, though, that the FCC may not have sufficient authority under the Communications Act to hold such auctions, in the absence of further action by Congress.

309 United States ii Flexible spectrum use In recent decades, the FCC increasingly has adopted a flexible approach to defining the uses to which a particular radiofrequency band may be put, or the optimal scope of licence to meet their business needs. For example, the FCC has granted licensees flexibility to redefine their own service territory, dividing or combining geographically bounded licenses, and to subdivide their assigned spectrum and sell or lease a portion to another user. The FCC also has adopted more fluid service definitions, for example, permitting fixed and mobile operations, or terrestrial and satellite operations, in the same band. In 2002, the FCC commissioned the Spectrum Policy Task Force Report to evaluate ways to increase flexibility and efficiency in the use of available spectrum resources. The report concluded that the key failing of spectrum policy was not the scarcity of available spectrum per se, but rather that administrative rigidities prevented more efficient use of this spectrum resources. Accordingly, the report proposed a number of measures to allow spectrum policy to evolve towards more flexible and market-oriented regulatory models. Among other things, the report recommended the creation of a secondary market in spectrum rights, as well as measures to facilitate the use of spectrum by unlicensed devices. In the Secondary Markets Report and Order, the FCC took significant first steps to facilitate the development of secondary markets in spectrum usage rights involving terrestrial radiofrequency-based services. Specifically, the FCC adopted rules to facilitate two types of leasing arrangement: (1) a ‘spectrum manager’ lease, in which a lessee is permitted to use spectrum subject to the oversight and control of the initial licensee; and (2) a ‘de facto transfer’ lease, in which the lessee assumes many of the obligations of a licensee, and exercises control over its own spectrum operations. The FCC has also examined ways to facilitate unlicensed use of certain spectrum bands, provided that such use does not interfere with licensed operations (if any) in those bands. For example, the FCC recently adopted rules permitting certain devices to operate on a secondary, unlicensed basis in unused broadcast television spectrum – also known as ‘white spaces’.

V MEDIA

The regulation of media distribution outlets and content varies depending on the business model and technology being used. As previously noted, Internet-based content delivery is very lightly regulated in the US. More traditional media outlets historically have been regulated by the FCC. Television and radio stations broadcasting video content for free to listeners and viewers via terrestrial radiofrequency spectrum are subject to extensive regulation by the FCC, which has exclusive licensing authority for such stations in the United States. Among other things, the FCC has adopted detailed technical rules governing this type of broadcaster, restricted their ability to air ‘indecent’ or ‘obscene’ programming, imposed political broadcasting and other ‘public interest’ obligations on them, and adopted multiple ownership restrictions. These regulations are largely premised on the idea that radiofrequency spectrum is a scarce resource, and thus the FCC should promote localism, diversity of ownership, and service in the public interest. The FCC also tends

310 United States to apply the foreign ownership restrictions discussed above most rigidly to over-the-air broadcast services. Entities providing electronic media services by subscription – cable TV, direct- broadcast satellite (‘DBS’) service, subscription radio, or even subscription over-the-air TV stations – generally are subject to less restrictive regulation than terrestrial ‘free over-the-air’ broadcasters, especially regarding their content (‘obscene’ material may be prohibited, but not material that is merely ‘indecent’). The ‘scarcity’ basis for terrestrial broadcast regulation is not deemed applicable to them. Nevertheless, subscription satellite radio providers and multichannel video programming distributors, such as DBS and cable TV providers, remain subject to FCC regulation. Moreover, terrestrial cable TV operators also are subject to franchising by state or local authorities for the use of public rights of way. i Digital switchover In 1996, Congress authorised the distribution of an additional terrestrial broadcast channel to each terrestrial broadcast TV station licensee for digital broadcasting, with the understanding that existing analogue broadcasting channels would be surrendered and reallocated for other users following a reasonable transition. Congress subsequently established 12 June 2009 as the last day for full-power TV stations in the US to broadcast in analogue. Since that date, all full-power TV stations have been transmitting in digital only. The reallocation of the spectrum thus recaptured from the analogue broadcast service remains a high priority of the FCC, which has stated its intention to maximise the availability of spectrum for broadband communications (such as Internet access) as well as to set aside a band of spectrum for public safety use. ii Internet-delivered video content The regulatory status of Internet-delivered video content turns in part on whether it can be considered ‘video programming’ under the Communications Act. This term encompasses ‘programming provided by, or generally considered comparable to programming provided by, a television broadcast station’. Much online video content does not fall into this category, and as such lies outside of the FCC’s jurisdiction. Also significant is the manner and form in which ‘video programming’ is delivered to the viewer. For example, ‘video programming’ may be subject to minimal regulation if it is incorporated into an ‘information service’ by virtue of the use of the Internet or other broadband technologies as a delivery mechanisms. Moreover, the FCC also has identified a category of ‘interactive television’ services – defined as ‘a service that supports subscriber-initiated choices or actions that are related to one or more video

1 the 12 June 2009 deadline for ending analogue broadcasts did not apply to low-power, Class A, or TV translator stations. These stations eventually will be required to transition to digital channels, although the FCC has not yet established a deadline by which this must occur. Already, many low-power stations are broadcasting in digital, though, with many more stations authorised to construct digital facilities.

311 United States programming streams’ – but it has not decided what requirements, if any, should apply to such services. Notwithstanding the general uncertainty with respect to the regulatory status of Internet-delivered video content, IPTV services delivered by telecommunications companies have been subject to franchising as ‘cable’ systems under some state and local requirements. In order to expedite competitive entry into the IPTV market, to facilitate competition to entrenched cable TV operators, several states have adopted state-wide franchising, and preempted separate approval requirements in individual cities. The FCC encourages rapid approval of competitive franchising requests and has threatened to preempt states that do not promptly act on such requests. The First Amendment to the US Constitution guarantees the freedom of speech, and sharply limits the ability of the government to regulate the content of a broadcaster’s programming. Several decades ago, the courts recognised the FCC’s authority to prohibit ‘indecent’ programming by terrestrial broadcasters, based on the government’s interest in ensuring that scare spectrum rights are used in manner that serves the public interest, and the unique pervasiveness of broadcast media in lives of Americans and their children. It is unclear whether the FCC’s rules remain constitutional in today’s media- rich market. In recent years, the FCC has fined stations that aired ‘fleeting expletives’ – incidental words or gestures that are broadcast despite the reasonable precautions taken by the licensee to avoid indecent broadcasting. In July 2010, the US Court of Appeals for the Second Circuit rejected this policy as unconstitutionally vague and overly broad. The FCC may appeal this decision to the US Supreme Court, or attempt to reform its indecency regulations to address the court’s concerns.

VI SECURITY i Privacy and consumer protection The Communications Act protects the privacy of ‘customer proprietary network information’ (‘CPNI’), which includes the date, time, duration, and location of a call, type of service used, and other details derived from the use of a telecommunications service. US law also protects the contents of any telecommunications message from eavesdropping, recording, use or disclosure by a third party without a user’s consent. Users of online services enjoy similar protection from eavesdropping or disclosure of their communications. Exceptions apply where access to, or use or disclosure of such information is necessary for law enforcement, which in most cases requires prior approval by a judge. Unresolved legal questions include: whether and in what circumstances the location of a user of a mobile on-line service should be considered CPNI, and whether there should be uniform rules governing collection and use of information from adult users of online services for ‘behavioural marketing’ (targeting advertising to a user based on his or her online behaviour or information gathered from the user on-line). The FTC, FCC and Congress are considering these and similar issues. ii Protection for children The Children’s Online Privacy Protection Act of 1998 (‘COPPA’) restricts the ability of website operators to collect personal information from children under 13 years of

312 United States age. The type of ‘verifiable parental consent’ that is required before collecting and using information provided by children under 13 is based upon a ‘sliding scale’ set forth in a FTC regulation that takes into account the manner in which the information is being collected and the uses to which the information will be put. While children under 13 can legally give out personal information with their parents’ permission, many websites altogether disallow underage children from using their services due to the regulatory burdens involved. iii Cybersecurity Shortly after taking office, President Obama ordered the completion of a Cyberspace Policy Review to evaluate federal efforts to defend the US information and communications infrastructure, and to formulate recommendations to improve those efforts. In implementing those recommendations, the US has sought to: (1) create or enhance shared situational awareness of network vulnerabilities, threats, and events and the ability to act quickly to reduce current vulnerabilities and prevent intrusions; (2) enhance US counterintelligence capabilities and increase the security of the supply chain for key information technologies; and (3) strengthen the future cybersecurity environment by expanding cyber education, coordinating and redirecting research and development efforts, and working to define and develop strategies to deter hostile or malicious activity in cyberspace. The FCC has explained that one of its core objectives is ‘to strengthen the protection of critical communications infrastructure.’ Significantly, the FCC recently proposed development of a two-year plan to address ‘vulnerabilities to communications networks or end-users and to develop countermeasures and solutions in preparation for, and response to, cyber threats and attacks’ in coordination with other US federal agencies such as the Department of Homeland Security, and the Federal Bureau of Investigation. iv Emergency response networks Because US communications networks are privately owned, the FCC’s role in ensuring emergency preparedness primarily is one of gathering and disseminating information and coordinating among different governmental agencies. For more than 15 years, the FCC also has required facilities-based telecommunications service providers to participate in industry-run working groups focused on developing best practices to ensure network reliability, to report network outages, and to be prepared to restore network services as rapidly as possible in the event of an outage. The recommendations of this group do not have the binding force of law, but have played an important role in shaping industry practice and have prompted some limited FCC rulemaking activity. For example, FCC rules now require all wireline and wireless telecommunications service providers to maintain on site a back-up power source (typically, a generator) capable of keeping networks functioning for a minimum number of hours. In addition, under the Telecommunications Service Priority (TSP) program, service providers must afford priority service to federal, state and local governments and other critical institutions. Following the events of 11 September 2001, the FCC created its Public Safety and Homeland Security Bureau (‘PSHSB’), which is responsible for: (i) the emergency

313 United States preparedness of US network operators; (ii) the radiofrequency spectrum needs of public safety ‘first responders’ (police, fire, ambulance, and emergency medical teams); and (iii) coordination among network operators and various governmental organisations to address cybersecurity concerns. Much of the PSHSB’s activity has focused on ensuring adequate spectrum for public safety users, and ensuring the interoperability of different public safety networks. The FCC recently proposed to create a ‘nationwide interoperable public safety broadband wireless network,’ funded in part through a national grant program, to permit first responders to communicate with one another when other networks are inoperable.

VII YEAR IN REVIEW

Within the past year, the FCC has completed its review of several major telecommunications and media transactions. These transactions are indicative of the breadth of the FCC’s authority, some examples of which are as follows: a the sale by Verizon Communications to Frontier Communications of 4.8 million telephone lines located in 14 states, subject to certain ‘voluntary commitments’ by Frontier and Verizon concerning broadband availability, access by competitors, and other matters. b at&T’s acquisition of Centennial Communications, a provider of regional wireless and broadband communications services with approximately 1.1 million wireless subscribers and 789,100 access line equivalents. c the acquisition of SkyTerra Communications (now LightSquared), a mobile satellite service (‘MSS’) provider, by Harbinger Capital Partners, a private equity investment firm with the intention of deploying a nationwide wireless broadband network using a combination of MSS and terrestrial spectrum.

The FCC also has initiated but not yet completed its review of several other major transactions, including: a the proposed merger of NBC Universal, Inc. and Comcast Corporation, which would combine NBC’s two broadcast television networks (NBC and Telemundo), 26 locally owned-and-operated broadcast television stations, national cable programming networks, motion picture studios, international theme park businesses and online content businesses with Comcast’s regional sports networks, other programming networks, cable television distribution networks and certain online businesses. The FCC took the unusual step of appointing a special counsel to review the transaction. b the acquisition of Qwest Communications, a large, full-service telecommunications provider whose wireline subsidiary serves approximately 10.3 million telephone lines and 3 million broadband customers across 14 states, by CenturyLink, also a full-service telecommunications service provider.

314 United States

VIII CONCLUSIONS and OUTLOOK

Implementation of the National Broadband Plan will continue to be the driving force in US communications regulation for the foreseeable future. The classification of broadband Internet access services and the possibility of ‘open Internet’ regulation are likely to remain open issues actively under consideration at the FCC in 2011, as are allocating additional spectrum for broadband networks and for a nationwide, interoperable public safety radiofrequency band. Universal service support for wireline and wireless networks is expected to occupy both the FCC and Congress with numerous competing proposals. With the possibility of changes in Congress in January 2011, the FCC’s priorities and proposals may be further revised in the coming year.

315 About the Authors

Simon Berry Latham & Watkins LLP Simon Berry is a partner in the Hong Kong office of Latham & Watkins LLP and a member of the corporate department. Mr Berry has extensive experience in regulatory law. His practice also focuses on a broad range of mergers and acquisitions, reorganisations, post-acquisition integration and corporate finance transactions involving regulated entities such as banks, insurance companies and financial institutions. His experience in regulatory matters includes licensing and advisory work covering a wide range of regulated activities including securities, commodities, futures and other derivatives, asset management and proprietary trading including offerings of investment products, outsourcing, e-commerce-related issues, data privacy, Internet securities trading and e-banking matters. He has advised on the acquisition and disposal of a number of licensed entities as well as members of stock exchanges, futures exchanges, clearing companies and other regulated entities. His experience in mergers and acquisitions includes takeover offers, sales and purchases of businesses and companies, direct investments, private equity, joint ventures, mergers by legislation, schemes of arrangement and other commercial agreements. He has also advised on transactions involving television companies and radio broadcasting companies.

Karen Brinkmann Latham & Watkins LLP Karen Brinkmann is a partner in the Washington, DC office. She chaired the attorney- mentoring programme at Latham & Watkins LLP for 10 years and currently represents the DC office on the Women Enriching Business Task Force. Ms Brinkmann’s practice focuses primarily on counselling telecommunications, information technology and mass media companies on regulatory and transactional matters. Her clients include wireline and wireless telecommunications carriers, satellite operators, Internet service providers, IPTV providers and other new market entrants. She also represents investment banks and private equity firms investing in the media, telecommunications and information services sectors, as well as large users of communications services. Her clients include Alaska Communications Systems, the Carlyle Group, CenturyLink, FairPoint Communications, Frontier Communications, Hargray Communications, Hawaiian Telcom, Lynch Interactive and MBO Wireless. Ms Brinkmann received her JD from New York University School of Law, and her AB from Brown University. Active in the Federal Communications Bar Association (FCBA), she currently serves on the FCBA Foundation board of trustees. She has received accolades for her writing and is the author of numerous articles on legal developments affecting the communications sector and new market entrants. In 2005, Ms Brinkmann was nominated by her clients to the BTI Client Service All-Star Team, based on a survey of executives at Fortune 1000 companies and large financial institutions. About the Authors

Vi Vi Chow Latham & Watkins LLP Vi Vi Chow is an associate in the Hong Kong office of Latham & Watkins LLP and a member of the corporate department. Her practice focuses on advising banks and financial institutions on regulatory and compliance issues such as licensing matters, selling restrictions, disclosure issues and marketing of securities under Hong Kong’s securities regulatory regime. Her experience in the corporate finance area includes advising on acquisitions from the Hong Kong law perspective, public offerings, and compliance matters for listed companies in Hong Kong.

Christophe Clarenc Latham & Watkins LLP Christophe Clarenc is a partner in the Paris office of Latham & Watkins LLP. He is engaged in the competition law (French and European) and in liberalised and regulated sectors (telecommunications and energy). He is also active in the area of administrative contract and public procurement. He is highly recommended for his antitrust litigation skills with ‘impressive work force abilities’ and ‘remarkable analysis capabilities’ (Legal 500: EMEA 2009), with a band 2 individual ranking in competition by Chambers since 2008. Representing leading companies, particularly in the telecoms and media sectors, he is praised as a ‘formidable litigator who can successfully link the technical aspects of the telecoms industry with the regulatory aspects’ (Chambers Global 2008) and ‘an acclaimed expert for competition issues in the telecoms sector’ (Chambers Europe 2010). He is ranked as a leading lawyer in this sector (Chambers 2008, PLC 2009), the most recent edition of Chambers Europe ranking him in tier 1 in TMT Telecom (Chambers Europe 2010). He is also fully engaged in competition and regulatory counselling and contentious activities in the energy sector. He developed an ‘undisputed expertise in the energy regulated sector’ (Legal 500: EMEA 2009) and has been selected as the French energy lawyer by GlobalLawExperts 2010.

Gail Crawford Latham & Watkins LLP Gail Crawford is a partner in the London office. Her practice focuses primarily on technology, intellectual property and commercial law and includes advising on technology licensing agreements and joint ventures, technology procurement, data protection issues and e-commerce and communications regulation. She also advises both customers and suppliers on multi-jurisdictional IT, business process and transformation outsourcing transactions. Ms Crawford has extensive experience advising on data protection issues including advising a global corporation with operations in over 100 countries on its compliance strategy and advising a number of US e-commerce and Web 2.0 businesses as they expand into Europe and beyond. She also advises online business and providers of communications services on the impact of UK and European restrictions on the interception and disclosure of communications data. About the Authors

John P Janka Latham & Watkins LLP John P Janka is a partner in the Washington, DC office of Latham & Watkins LLP, where he is chair of the communications practice group. For over two decades, Mr Janka has counselled international telecommunications operators and ISPs, content providers, investors and banks on a variety of regulatory, transactional and controversy matters. His experience includes the purchase, sale and financing of communications companies, the procurement and deployment of communications facilities, global spectrum strategies and dispute resolution, the provision of communications capacity, content distribution, strategic planning, and effecting changes in legal and regulatory frameworks. His clients include satellite, wireless and other terrestrial communications companies, video programming suppliers, information service providers, television and radio broadcast stations, and firms that invest in and finance these types of entities. Mr Janka has served as a United States delegate to an ITU World Radio communication Conference in Geneva, and as a law clerk to the Honorable Cynthia Holcomb Hall, United States Court of Appeals for the Ninth Circuit. Mr Janka holds a JD degree from the University of California at Los Angeles School of Law, where he graduated as a member of the Order of the Coif, and an AB degree from Duke University, where he graduated magna cum laude.

Tim Johnson Latham & Watkins Gaikokuho Joint Enterprise Tim Johnson is a corporate associate in the Tokyo office of Latham & Watkins Gaikokuho Joint Enterprise. His practice involves a wide range of corporate and finance matters. He has experience in representing private equity firms, international corporations and financial institutions. Prior to joining Latham, he served as a law clerk to the Honourable I Leo Glasser and the Honourable Steven M Gold of the United States District Court for the Eastern District of New York. Mr Johnson is admitted to practise in New York. He is a graduate of Carleton College and the University of Virginia School of Law.

Tomohiko Kamimura Latham & Watkins Gaikokuho Joint Enterprise Tomohiko Kamimura is an associate of Latham & Watkins Gaikokuho Joint Enterprise in Tokyo. His practice focuses on corporate and finance matters, including general corporate matters, employment law, mergers and acquisitions, joint ventures, banking and aircraft finance and leasing. He also has experience in intellectual property litigation and internal investigations. He has represented a number of Japanese and international technology and telecommunications companies on Japanese regulatory matters. Mr Kamimura is admitted to practise in Japan, and is a member of the Daini Tokyo Bar Association. He is a native speaker of Japanese and fluent in English. About the Authors

Hiroki Kobayashi Latham & Watkins Gaikokuho Joint Enterprise Hiroki Kobayashi is a corporate partner of Latham & Watkins Gaikokuho Joint Enterprise in Tokyo. He advises on Japanese legal issues relating to a variety of areas of transactional practice, including corporate law and various government regulatory matters. He handles a number of cross-border M&A matters in collaboration with Latham & Watkins attorneys in other offices, and counsels clients on M&A transactions conducted under different business practices. His recent experience includes an acquisition by Turner Broadcasting System, Inc through its Japanese subsidiary Japan Entertainment Network KK of Japan Image Communications Co Ltd, a licensed operator of multiple TV channels, and a sale by Liberty Global of its US subsidiaries holding shares in Jupiter Telecommunications, Japan’s largest cable television operator, to KDDI. Mr Kobayashi has spoken on the topic of privacy in cyberspace at a meeting of an academic society of computer scientists. Mr Kobayashi is admitted to practise in Japan and New York and is a member of the Daiichi Tokyo Bar Association and the New York State Bar Association. He is a native speaker of Japanese and fluent in English.

Zahra Rahvar Latham & Watkins LLP Zahra Rahvar is an associate in the Hamburg office of Latham & Watkins LLP, practising in the firm’s corporate department. She is a graduate of Bucerius Law School in Hamburg and has been a scholar of the German National Academic Foundation. Dr Rahvar wrote her doctoral dissertation on the topic of press freedom under the influence of media convergence. During her legal studies, she worked as a research associate at the Chair of Public Law and Comparative Law under Professor Michael Fehling, mainly in the field of media, environmental and administrative law, and also spent a fair amount of time abroad as an exchange student at, inter alia, Yale University, Minnesota School of Law and Paris II, under the Tulane Law School summer programme.

Omar Shah Latham & Watkins LLP Omar Shah is a partner in Latham & Watkins LLP’s London office. He advises clients in the media and communications sector on antitrust and regulatory issues and represents them before UK, EU and other regulatory and competition authorities, courts and tribunals. His experience includes acting for a UK broadcaster in an Ofcom investigation into licensing of digital terrestrial television; acting for a major UK telco in an Ofcom investigation into consumer broadband pricing; acting for a leading provider of electronic programme guides in securing UK licensing from Ofcom; representing various telcos in securing merger control clearance from the Office of Fair Trading, the European Commission and other regulators for several transactions; and defending a major advertiser and provider of online music services in an investigation by the Advertising Standards Authority, including subsequent judicial review proceedings in the English High Court. About the Authors

Jarrett S Taubman Latham & Watkins LLP Jarrett S Taubman is an associate in the Washington, DC office, where he represents providers of telecommunications, media, Internet and other communications services (and their investors) before the Federal Communications Commission (FCC), state public utilities commissions and various courts. Mr Taubman assists clients in implementing strategies to facilitate the development of favourable regulatory policy, structuring transactions and securing required regulatory consents, and ensuring ongoing compliance with complex regulatory requirements. Much of his practice involves the navigation of the complex legal and policy issues raised by the advent of broadband services. Mr Taubman also represents both communications and non-communications clients before the Committee on Foreign Investment in the United States (CFIUS), a multi-agency group with the statutory authority to review and block proposed investments in critical US infrastructure from non-US sources. Mr Taubman received his JD from New York University School of Law, a master’s degree in public policy from Harvard University Kennedy School of Government, and a BS from Cornell University School of Industrial and Labor Relations.

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