JULY 2016 | VOLUME 44 | ISSUE 2 REGULATORY TRADE-OFFS Peter Alexiadis concludes his tour of the trade- offs inherent in communications regulation NEXT STEPS FOR AUDIOVISUAL Europe’s Audiovisual Media Services Directive is under review, with global implications TAKING STOCK OF 5G 5G is likely to be disruptive, but not in all the ways that are currently being put forward SMARTPHONES: A DIGITAL DIVIDE? THE WORLD’S MOST INFLUENTIAL TELECOMS AND MEDIA POLICY, REGULATORY AFFAIRS AND COMPLIANCE JOURNAL They could be if it’s the only device you have

OPENINGS FOR ZERO RATING PROS AND CONS EVALUATED By Augusto Preta and Peng Peng 47th Annual Conference Trends in converged communications: New tipping points, new digital policies and strategies 12-13 October, 2016

Venue: The Eastin Grand Sathorn Hotel, Bangkok

47TH ANNUAL CONFERENCE TOPICS: 12-13 October 2016

Priorities for regulators adapting to digital transformation Linking ICT policy and regulation with Sustainable Development Goals Business and policy models in the new digital economy Stimulating quality digital content in an OTT world Evolving priorities, consumption patterns and attitudes to privacy, security and freedom

INTERNATIONAL REGULATORS FORUM 2016: 10-11 October 2016

The demands of convergence Cross sectoral regulation Levelling the playing field: the challenges Connecting the unconnected Spectrum: what is 5G and what does it mean for the regulator?

BOOK NOW FOR BOTH EVENTS: SCAN ME FOR MORE INFORMATION TEL: +44 (0)20 8544 8076 ABOUT THIS WEB: www.iicom.org ANNUAL CONFERENCE EMAIL: [email protected] JULY 2016 | VOLUME 44 | ISSUE 2 CONTENTS

SPEED IS OF THE ESSENCE www.iicom.org The International Institute of Communications is the world’s leading independent, non-profit, There is often a debate about whether a membership forum engaged with digital particular issue is best served mainly by ex-ante media policy and regulatory affairs. regulation or competition law, and one of the IIC activities cover issues in telecommunications, broadcasting and the internet. factors is the speed at which either can be Intermedia editorial enquiries: brought to bear. Given the pace of technological [email protected] change and the corresponding effects on consumers and Intermedia subscription and markets, the ability to have an agile framework in place is IIC membership enquiries: Joanne Grimshaw, more pressing than ever. As usual, this issue of Intermedia [email protected] highlights several such issues, such as zero rating, where IIC Intermedia © International Institute of opinions are sharply divided about whether it should be in Communications and contributors 2016 the net neutrality camp, and ‘big data’, which has now Follow us: attracted the attention of two of Europe’s leading competition authorities in a new paper that we highlight. In fact, the word @The_IIC ‘agile’ crops up in our news item on a World Economic Forum Watch speakers at IIC events on: global IT report – the need for an ‘agile governance’ system is stressed, which implies not just speed but flexibility for the www.youtube.com/user/TheIICom Further content and details are available digital economy. Chris Chapman, President, IIC on the IIC website: www.iicom.org

12 COMPETITION AND BIG DATA Two competition regulators have teamed up to assess the implications of the big data boom for market power and other issues. Tim Cowen picks out the highlights 15 SMARTPHONES: LIBERATION OR LIMITS? Is a new digital divide developing among certain types of smartphone users? Alison Preston reports from the UK 18 EUROPE IN THE ROUND (PART 2) Peter Alexiadis delivers his second instalment of trade-offs that are inherent in communications regulation 23 ZERO-RATING OPENINGS The controversial topic of zero rating is given a thorough economic analysis by Augusto Preta and Peng Peng. 2 NEWS Should it be open for business in a net neutrality world? A round-up of global TMT news and events 29 AUDIOVISUAL DIRECTIVE UPDATE 4 IIC EVENTS The European Commission has now proposed important Cristina Murroni reports on two of the IIC’s key international updates to the Audiovisual Media Services Directive. Lorna meetings – the TMFs in Brussels and Miami Woods describes changes that could have global impact 10 Q&A 33 TAKING STOCK OF 5G We interview US communications ambassador There is a lot of hype about 5G but recently some much- Daniel Sepulveda in his last year in the role needed reality checks have emerged about its impact www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 1 NEWS FROM AROUND THE GLOBE

FRANCE DATA-DRIVEN REGULATION Arcep, France’s telecoms regulator, has described how it will use ‘data-driven’ regulation to steer the market in the right direction. This will include ‘crowdsourcing’ information from users about performance and coverage, and will also call on mobile users to share problems, “marking a shift from an approach based on customer complaints to one of civic action”. In a briefng to analysts, under the title ‘Telconomics: How to face regulatory challenges in the digital age’, the head of Arcep, Sébastien Soriano, said the main connectivity challenge in France is to address a lag in rolling out ultra-fast broadband, both fxed and mobile, and described consultations on issues such as Carl Bildt alongside OECD secretary-general Angel Gurría at the launch of One Internet at the geographic local-loop unbundling prices, regulation ministerial meeting in Mexico on the digital economy of wholesale fxed markets, and data collection. INTERNET GOVERNANCE Arcep is also reorganising to cover new responsibilities such as open internet regulation. OECD LAUNCHPAD FOR ‘ONE INTERNET’ One Internet, the fnal report and recommendations of the Global Commission on Internet Governance, was released at the OECD ministerial REMOTE ACCESS meeting on the digital economy in Cancún, Mexico, in June. Chaired by FACEBOOK OPENS UP former Swedish Prime Minister Carl Bildt, the report has recommendations Facebook says it has tested an open source “crucial to ensuring the internet’s promised future of greater digital software-defned wireless access platform aimed freedom, security, trustworthiness and accessibility for all”. at improving connectivity in remote areas. It can Said Bildt: “The internet is at a crossroads. The threats to privacy and the be deployed to support a range of communication risk that the internet will break apart are real. If we want a future where options, from a ‘network in a box’ to an access the internet continues to provide opportunities for economic growth, free point supporting everything from 2G to LTE. The expression, political equality and social justice then governments, civil company plans to make the hardware design open society and the private sector must actively choose that future and then source, along with necessary frmware and control take the necessary steps to achieve it.” software, to enable local deployment of the One Internet addresses a range of issues related to internet governance, platform. “We aim to work with Telecom Infra such as: Project (TIP) members to build an active open l Governments should not require third parties to weaken or compromise source community around cellular access encryption standards through hidden ‘backdoors’ into technology; technology development and to select trial companies should not become the enforcement arm of governments. locations for further validation of technical, l Private actors should publish transparency reports that reveal the functional and operational aspects of the amount of content being restricted or blocked in response to requests by platform,” says the company. See bit.ly/29ioWvx governments, along with how and why it is being blocked. l Consumers should be free to choose the services they use, and should have greater say in how their personal data is used by ‘free’ service NET NEUTRALITY providers for commercial purposes. GRASSROOTS ACTION l Insurance markets must rise to the challenge of ensuring that best The FCC has received more than 100,000 complaints practices for data protection and security are appropriately rewarded. from Americans calling on the regulator to take l Because of their impact on human behaviour and opinion, governments, strong enforcement action if and when companies civil society and the private sector need to come together to understand violate the FCC’s Open Internet Order with zero-rating the efects of algorithms on the content available to us online. schemes. The action is supported by groups such The commission is a two-year initiative of the Centre for International as Fight for Freedom. The FCC’s current position is Governance Innovation (CIGI). that there is no one-size-fts-all answer. But other n The OECD’s ministerial on the digital economy was only the third such agencies, such as the Multicultural Media, Telecom meeting of the organisation – there was one on the internet economy and Internet Council (MMTC) “strongly support free in Seoul in 2008, and a frst in 1998 on e-commerce. The latest meeting data and zero-rating programmes”. also saw the announcement of the Cancún Declaration on commitments n Website owners in Europe have been protesting to to digital economy principles, and a Latin America broadband toolkit, BEREC, the EU body of regulators, about ‘loopholes’ produced with the Inter-American Development Bank. that would let ISPs sell ‘fast lanes’ to large companies.

2 InterMEDIA | July 2016 Vol 44 Issue 2 www.iicom.org EVENTS 30 Sept-1 October, Arlington TPRC44 10-14 October, Bangkok DIGITAL ECONOMY IIC Communications Policy and Regulation Week 2016 TOP NATIONS PULL AHEAD IN ICT CLOUT 17-18 October, Costa Rica The Global Information Technology emerging Europe, the Middle East, Freedom Online Conference Report 2016 from the World Economic North Africa and Pakistan, and 14-17 November, Bangkok Forum (WEF) has found that Finland, Sub-Saharan Africa – having widened ITU Telecom World 2016 the gap between the most and least Switzerland, Sweden, Israel, Singapore, 29-30 November, Washington the Netherlands and the US are networked-ready since 2012.” IIC Telecommunications and leading the world when it comes to Another cautionary note is that Media Forum (TMF) generating economic impact from the data also suggest that individuals 6-9 December, Guadalajara (tbc) investments in ICT. On average, this are driving ICT adoption much Internet Governance Forum group of high-achieving economies more enthusiastically than either – at the pinnacle of the report’s governments or business, where no ‘networked readiness index’ – scores clear trends are discernible across IN BRIEF 33% higher than other advanced regions since 2012. economies and 100% more than The report also addresses the fact POLICY PRIORITIES emerging and developing economies. that technologies change far faster The South African economy needs “The breakaway of these seven than regulatory regimes do, as also a new approach to regulation, economies is signifcant for other noted by the WEF’s Global Agenda competition and industrial policy nations given the role that networked Council on the Future of Software and to open the economy to greater readiness is likely to play as the world Society in a call for agile governance participation, according to research transitions to the ‘fourth industrial principles, which includes favouring released by the Centre for Competition, Regulation and revolution’,” says the WEF. Although outcomes over rules-based Economic Development (CCRED) at compliance, and responding to about 75% of countries in the index the University of Johannesburg. show improvement in this year’s change over following a plan – the See bit.ly/29CsLBZ report, “convergence both at the kind of approaches involved in ‘agile’ global and regional level remains development. UTILITY PAPER elusive, with four regions – Eurasia, The report is at bit.ly/29AzwRq New Zealand’s government has released a paper on its proposed utility-style regulation framework DATA PRIVACY for telecoms. See bit.ly/29OG7dQ CRYPTOCURRENCIES NOT DISRUPTIVE BUT UK GETS TOUGH EU AV UPDATE ON BREACHES The European Commission has OPENING UP THE NEW proposed an update of audiovisual The UK government’s Culture, A report from Citi Research does not rules to create a fairer environment view cryptocurrencies as a disruptive Media and Sport Committee has for all players, promote European threat to banks or card networks, noting recommended a prison sentence of flms, protect children and tackle that centralised domestic payment up to two years for those convicted hate speech better. See page 29. systems provide a relatively good of unlawfully obtaining and selling experience. “Unlike other industries personal data. It has also said the FCC’S COURT WIN UK Information Commissioner’s (eg. newspapers) disrupted by A US federal appeals court has voted Ofce (ICO) should have a robust distributed solutions, the beneft to the to uphold the FCC’s net neutrality consumer from a decentralised system system of escalating fnes to rules. The 2-1 court ruling forces seems at best marginal with the only sanction those who fail to report internet providers such as Verizon exception being anonymity,” the report and prepare for data breaches. and Comcast to obey federal says. But cryptocurrencies can open up The committee’s recent inquiry into regulations that ban the blocking new markets such as applications cybersecurity was triggered by a or slowing of internet trafc to that support the internet of things series of data breaches at operator consumers. (eg. machine to machine payments). Talk Talk, but the committee Another use case could be providing the has warned that the problem is ITU ON THE MONEY unbanked with low-cost digital banking signifcant, growing and afects all The ITU’s focus group on digital products on mobile phones. Interesting sectors with an online platform or fnancial services has published a examples with Bitcoin include Circle service; 90% of large organisations series of reports as it seeks to (social payments), Abra (fnancial have reportedly experienced develop guidelines for regulators, inclusion) and BitPesa (B2B payments). a security breach, and 25% of operators and providers in the The report is at citi.us/29CjF5l companies experience a cyber- telecoms and fnancial services sectors. See bit.ly/29BkH4q breach at least once a month. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 3 IIC EVENTS SINGLE MINDED The IIC’s TMF in Brussels was a comprehensive examination of ongoing digital single market issues, as CRISTINA MURRONI reports

uropean institutions and industry players DELIVERING ECONOMIC GROWTH convened in Brussels in March to discuss the Exactly how the DSM should deliver economic latest policy developments in Europe at the growth was the topic of the next session, opened by E IIC’s spring Telecommunications and Media Tobias Schmid (RTL Group). Remarking that the new Forum (TMF), hosted by the Belgian Institute for policy will need to work in the world we will face in Postal Services and Telecommunications (BIPT). The the next 5-6 years, he suggested that regulatory forum kicked off with keynote reports on the status objectives such as production of European content of the digital single market (DSM) review from should be pursued by looking at how such content representatives of the main European institutions. gets created in the new world, rather than by imposition. Theo Bertram (Google) focused on the HOLISTIC APPROACH important details that are still unclear about the Roberto Viola (director general, DG Connect, level playing field in the DSM, highlighting the European Commission) underlined the need to remove barriers to innovation. Commission’s holistic approach to the digital Data-driven innovation, actual bottlenecks, and economy, resulting in a new AV media directive, spectrum should be the key focus areas for the DSM, new telecoms package, reform of copyright, reform according to Ulf Pehrsson (Ericsson), and they of e-commerce rules, reform of privacy rules and should be approached with light touch, technology more. Next will be the industrial technologies neutral regulation. For Ilse Van der Haar (Tele2) the package: four policy communications that will set DSM should be about allowing operators to compete the priorities on which Europe should work to effectively, because it is competition that drives digitise industry. Among the new milestones: investment, innovation and better quality. portability of digital content throughout Europe Telefónica’s Enrique Medina Malo stressed that without geo-blocking, a ex-ante regulation should be relaxed or at least In particular, the 5G decision on the use of simplified, as the sector has changed dramatically 700 MHz and sub-700 MHz since liberalisation. network will be a for mobile broadband, and window of opportunity a new initiative for every FRAMEWORK REVIEW for greater spectrum researcher and SME in Wilhelm Eschweiler (this year’s chair of the Europe to have access to a European regulators’ body, BEREC) brought BEREC’s coordination in the data factory. perspective to the next session, which focused on European Union. Greater consistency the telecoms framework review. While securing the across member countries widest possible access to fast broadband networks is the expected result of remains the key issue in telecoms, the different the new legislation, according to Pilar del Castillo national markets may well have (and need) different Vera, member of the European Parliament. In tools to achieve this. BEREC proposes a graduated particular, the 5G network will be a window of approach to OTT (over the top) players, opportunity for greater spectrum coordination in recommending that only those ‘OTT-1’ services that the European Union. As the ensuing discussion substitute existing telecoms services (for example reinforced, Europe has an international advantage WhatsApp replacing SMS) should be immediately in the production of machines, so it must grab included in regulation. the strategic opportunity of breaking new ground Lise Fuhr (European Telecommunications in the internet of things (IoT), as well as getting Network Operators’ Association, ETNO) policy right. recommended that the focus of regulation be the Stefan Koreneef (attaché economic affairs, interests of users and the retail market, and ex-ante permanent representation of the Netherlands, regulation should only be applied where retail European Council) revealed that the current markets appear not to be competitive. However presidency (Netherlands) is organising at least good, regulation cannot build a market: investment, 25 DSM events to gather more feedback, evidence technology and consolidation build markets, and support for the DSM proposals. The team is according to Manuel Kohnstamm (Liberty Global). working with the two countries that will hold the The cable industry certainly needs more scale. For EU presidency next year, in the belief that the DSM André Merigoux (Nokia), the future of networks is in discussions will continue after their tenure, and the provision of specialised services as an enabler this policy will be crucial for growth in the EU. for different industries and uses. This requires

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improved timings for spectrum allocation, if the EU wants to gain a lead in 5G. Markus Reinisch (Vodafone) echoed that view, stating that Europe has lost the mobile lead to the US with 4G, and needs to move swiftly with 5G. To create opportunities for pan-European services that can compete against global players, a national approach cannot help – there needs to be more harmonisation and scale in Europe. DIGITAL PLATFORMS PANEL A panel was set up to discuss platforms and the specific problems they pose. For Stefano Quintarelli (Italian MP) we are moving towards a society where everything will be intermediated online. More than just technical or economic, regulating this market is a huge political issue. It has to do with our vision for our society of the future. Are we prepared to have only one intermediary for all our immaterial transactions? Tomas Lamanauskas (VimpelCom) proposed that when dealing with platforms, policymakers should look at the new opportunities they represent, and ask questions like: How could telcos manage their platform across Europe the way OTT players do? How could they manage cross- border customers and their data? This is likely to produce regulation that delivers the best value. Eirini Zafeiratou (Amazon Europe) argued that when it comes to data, the desired outcome is Top: the Brussels audience; below: the competition panel gets underway transparency for consumers by establishing clear responsibilities for platform providers. Ursula Pachl the move towards portability of content, and a (European Consumer Organisation, BEUC) provided series of initiatives aimed at ensuring that anyone the consumers’ perspective, stating that the can buy physical goods online in another country, main areas of concern relating to platforms are as if she or he were a local shopper. transparency, data ownership and consumer Focusing on the EU’s Audiovisual Media Services choice. There is substantive legislation in place Directive (AVMSD: see also article, page 29), Celene already to protect consumers, but many open Craig (Broadcasting Authority of Ireland; European questions remain about how it translates into the Platform of Regulatory Authorities, EPRA) observed online world. that the overall principles of the Television without The key word in regulation, according to Jan Frontiers Directive Krancke (Deutsche Telekom), is consistency. He said (TWFD) still apply, that once we decide that regulation is needed to What services should but adapting them guarantee a certain level of protection, is regulation come under the scope to the digital applied consistently along the entire value chain? world presents He added that competition law is the best tool to of the AVMSD – and how challenges. deal with network effects and platforms, but it they impact on plurality Material moves too slowly. and diversity goals – is a jurisdiction, Much of the following discussion focused on ie. what services possible developments to make competition policy challenge. should come under faster and thus more effective in a dynamic market the scope of the like telecoms. The UK has introduced an interesting directive – and how development, whereby entrants who face abuse they impact on the plurality and diversity goals – is from a dominant position can be heard on a fast a key challenge. The country of origin principle is track and obtain an interim injunction in as little likely to continue to define territorial jurisdiction. as three weeks. An option is also to have some kind From the BBC’s perspective, presented by Helen of quantitative index that triggers the regulators’ Keefe, broadcasters’ contributions to original attention. European productions need preserving within a reviewed AVMSD. Given the virtuous circle of SERVING THE DIGITAL CITIZEN wide access and large investments, public service Day two opened with a panel that discussed broadcasters are key contributors, but perhaps there proposals to better serve citizens in the digital age. should be greater flexibility to provide innovative Anna Herold (member of Günther Oettinger’s commercial opportunities with the new cabinet, European Commission) presented three technologies. measures aimed at boosting demand for cross- This may be an opportunity to deregulate some border purchases: the abolition of roaming charges, aspects of linear television, according to Andrew www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 5 IIC EVENTS

Hall (NBCUniversal). Commercial media companies need to be able to extract as much revenue as possible from successful content, because films are a risky business and the winners have to pay for the losers. This often means being able to extract territorial rights or exclusive deals. Similarly, Mathieu Moreuil (English Premier League) argued that demand for sports rights is very different in the various countries and, for the rightsholder, pan-EU rights would be a complete game changer with no clear benefits. Portability is already enshrined in the league’s new contracts, ahead of EU regulation. Stefan Krawczyk (eBay) reminded the meeting that e-commerce platforms benefit small traders the most, because they give them the visibility they would not be able to have on their own, particularly in mobile-based e-commerce. KEYNOTE ON DATA PRIVACY Microsoft’s John Frank started the conversation about data privacy with a keynote presentation. In the wake of international terrorist activity in Europe, clear rules about access to cross-border data should be set, especially for emergencies. A good balance between privacy and national security is maintained through independent judicial review of the request for access. Increasingly, there is also the need to respect territorial sovereignty, as data centres are located in different countries. Top: BEREC chair Wilhelm Eschweiler felds a question; below: Microsoft’s John Frank in full fow The Commission’s perspective was presented by Rosa Barcelo (DG Connect), focusing on the privacy CONSOLIDATION AND COMPETITION directive, which provides specific rules for the The final panel brought a range of views on telecoms sector. Each article of the directive will be consolidation and competition policy. Agustin evaluated to avoid duplication, and to see if it is still Diaz-Pines (DG Competition) commented that most relevant, effective and adds value, and whether it recent in-country mergers have been cleared has a new dimension. The next task is to simplify without conditions or remedy. Geoffrey Myers privacy governance, to avoid having several (Ofcom, UK) reported the push towards regulators dealing with different articles of the consolidation in the UK, with the O2/Three merger, directive in any one country. Finally, the new rules and how this has will level the playing field, so that functionally led Ofcom to defer similar services are subject to the same rules. Before the merger, the next spectrum Charlotte Holloway (techUK) welcomed the news prices were lower auction until the that the privacy directive is being checked for in Austria than in EU competition duplication or unnecessary complexity, particularly authorities clear as the UK’s Investigatory Powers Bill, currently ten representative the merger. [The under discussion in parliament, is a major concern. European countries, but merger was of course Thomas Dailey (Verizon International), reiterated blocked shortly after.] that the digital economy requires huge amounts of after they increased. Elisabeth investment, and a simple, predictable regulatory Dornetshumer environment is a key requirement for investors. (Austrian Joe McNamee (European Digital Rights, EDRi) Regulatory Authority for Broadcasting and echoed the need for clear, predictable and well- Telecommunications, RTR) gave details of the effect enforced rules, understanding that there are of a merger on mobile prices in Austria. Before the contexts in which self-regulation will work, and merger, prices were lower in Austria than in ten others where it cannot. He added that since data representative European countries, but after they protection is about flows of information being increased while decreasing or staying constant analysed in real time, the principles of data elsewhere. minimisation, purpose minimisation and protection Markus Wagemann (German Federal Cartel Office) by default are extremely important. reported on the remedies imposed on the The following discussion observed that Telefónica/E-Plus merger in Germany, which did not constraining data production may not come actually result in higher prices but increased the naturally to engineers, who would like to use as likelihood of coordinated effects between the three much data as possible, but privacy by design is taken remaining competitors. seriously, not least because security concerns push towards minimising data generation. CRISTINA MURRONI is a telecoms and media analyst.

6 InterMEDIA | July 2016 Vol 44 Issue 2 www.iicom.org IIC EVENTS MIAMI REACH The IIC’s second TMF of the year took place in its now regular Miami location, focusing on Latin America. There is also a regulators’ forum. By CRISTINA MURRONI

he IIC’s Miami Telecommunications and Media Forum (TMF) welcomed regulators, policymakers and industry from the Americas Tand the Caribbean with a keynote presentation by FCC commissioner Ajit Pai, who offered his recipe for the widest deployment of broadband. He argued that facilities-based competition, strengthened with competition law, is the best framework to ensure that as many people as possible will take advantage of the opportunities offered by digital platforms. DEMAND STIMULATION “There is a virtuous circle involving adoption, investments and prices: as adoption increases, The audience at the innovators but also push competitors to innovate, investments increase, driving prices down, which Miami TMF, held at as broadcasters develop their own OTT offerings in turn translates into higher adoption rates,” the Palms Hotel, alongside linear television. explained Ellen Blackler (Walt Disney). Demand-side Miami Beach Manuel Kohnstamm (Liberty Global) echoed that programmes, however, need to reach scale in order view, arguing that OTT players have set the bar of to make a real difference, reported Antonio consumer expectations at a high level, forcing the López-Istúriz White (European MEP). The EU is industry to innovate and provide a better experience making huge investments in people and knowledge: all the time. For Javier Tejado Dondé (Grupo Televisa) he spoke about a big data initiative and open access the key problem is the huge difference in regulation to big data networks, while 13 EU countries have across different distribution modes, something that joined a ‘grand coalition’ for digital jobs, to provide his company experiences first hand, since Televisa their citizens with digital opportunities. operates as a free to air broadcaster, but also has According to Juan Antonio Ketterer (Inter- pay-TV on both satellite and cable, and OTT services. American Development Bank), the objective is to Regulation should be technology neutral and not ensure that Latin America does not miss the digital oppose new ways to use or bundle technology, revolution, and the IADB is developing digital reasoned Jeffery McElfresh (DirecTV Latin America, solutions for farming and agriculture. This is the AT&T) in his keynote, since technology changes so digital equivalent of the lending of seed and fast that no one is really able to predict where it will fertilizer – the main way the bank used to work in take us next. For the past – and an example of how digital technology David Geary can help Latin America adapt to climate change. Better to put aside (Digicel Group), the entrenched free offers from OTT PLAYERS – SETTING A HIGH BAR OTT players create Over the top (OTT) players, the new kids on the positions, concentrate obvious difficulties block, are creating disruption in every continent. on getting connectivity for network In his keynote, Daniel Sepulveda (US Department first and then worry investments, of State) argued that the relationship between particularly in low broadband providers and OTT is an issue that about net neutrality. ARPU markets, and requires more research and debate before a solution the solution must or an agreement can be reached. If we engage in be between the that conversation with open minds and mutual polar opposites currently held by OTT and network respect, the right balance can be found. operators: better to put aside entrenched positions, One of the best known OTT companies, Netflix, concentrate on getting connectivity first and then is now a truly global company with presence in worry about net neutrality. over 190 countries worldwide. Paula Karol Pinha Alejandra de Iturriaga Gandini (CNMC, Spain) announced that the company is investing heavily concluded by explaining that new EU rules classify in production ($5bn this year) and in technology, OTT into OTT1 – providing services like telecoms particularly in mobile video and 4K TV (ultra HD (eg. WhatsApp) and OTT2 – the others. Only OTT1 resolution). She argued that OTT players are services are likely to be regulated. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 7 IIC EVENTS

PIRATES OF THE CARIBBEAN AND BEYOND For Daniel Manfredo (Intel) education is the great A keynote presentation on piracy by Alfredo Rafael challenge, because half of today’s children will work Deluque Zuleta (president, house of representatives, in jobs that have not been invented. Education Colombia) explained how technology has changed should be geared towards production, not the way content is obtained illegally and provided consumption, of technology. Other solutions, such some figures: half of South America’s 222 million as incubators and pilot projects, were suggested in internet users take advantage of online sites that the discussion that followed, as additional tools to have piracy issues. There has to be a conversation assist in the short term. Dialogue between industry about ways to work with the industry to find and academia, and ensuring that educators are wide-ranging solutions. re-trained (and have incentives to do so) are other Javier Figueras (HBO Latin America) confirmed important factors in growing the right skillset. that working with regulators has resulted in some progress, while Pascal Métral (Alianza contra UNIVERSAL SERVICE FUNDS IN A CHANGING INDUSTRY Piratería de Televisión Paga) described the coalition A look at the past, present and future of the sector approach adopted by the industry. The alliance was offered by Ulf Pehrsson (Ericsson) in a keynote proposes a range of measures: monitoring the presentation which really brought home the pace of extent of the problem, hitting strategic targets change in the communications industry. Still, by that will send a message to the sector and the 2021 there will be 1.7 billion people who are not consumer, training law enforcement officers, connected, the key barriers being affordability, educating consumers, as well as working with content and supporting infrastructure rather than regulators. technology. The public and private sectors need to Dialogue between industry and regulators has work together to help bridge this gap. been successful in educating the public and The speakers’ panel, comprising Héctor Huici developing preventive measures in Honduras, (ministry of communications, Argentina), Luciano reported Doris Madrid Lezama (National Charlita de Freitas (Anatel, Brazil), José Juan Haro Telecommunications Commission). For Todd Reves (Telefónica), Marcelo Mejia (TIM Brazil) and Roslyn (US Patent and Trademark Office) in Latin America Layton (Aalborg University, Denmark), described how the entire sector is so used to living alongside piracy most countries have yet to use the USO funds they that it fears that eradicating it may kill the industry, set up. Sometimes but of course there are solutions and new ways to the problem is a package TV offers that could address the problem, USO funds lose revenue political one, with if all stakeholders sit around a table to find them. from free OTT services, instability and Regulator Nievia Ramsundar (TATT, Trinidad and new governments Tobago) added that the industry needs to find new operators not based making it difficult ways to satisfy the demand that pirates address, and in the country, and by to set up USO needs to ensure that only properly authorised projects; sometimes content goes on air. services not falling USO funds are There was consensus that spelling out the within formal definitions. blocked by legal industry and country damage resulting from piracy definitions that no – jobs lost, public services that cannot be financed longer match because of lost tax revenues – can work well as an reality; in other cases the rules are there but their educational, preventive measure. Prevention is implementation lags behind. better than running after pirates. In all countries, however, USO funds lose revenue from the use of free OTT services, by services offered GROWING SKILLS FOR ICT INNOVATION by operators that are not based in the country and This session was devoted to the question of talent: by new services that may not fall within the formal how to develop, attract or retain the right talent definition of telecoms services that qualify for USO. for the digital world. Digital technologies are There were calls for alternative ways to finance moving jobs geographically, and making some skills universal service, ranging from general taxation, to obsolete. Other skills, such as engineering, are coverage obligations placed in licence conditions, becoming scarce and valuable. to innovative, flexible funds. Zero rating was Senator Juan Gerardo Flores Ramírez (secretary of discussed as a ‘free to air’ model for digital services the communications and transportation committee, in developing countries. Mexican senate) opened the floor, telling the audience about the strong incentive programme SPECTRUM UPDATES that Mexico has set up to develop the skills needed The initial phase of the world’s first ever incentive in the energy sector, and arguing that a similar auction has been completed in the US, and Mindel programme should be set up for ICT. Rodrigo de la De La Torre (FCC) commented that it has become an Parra (ICANN) reported on ICANN’s memorandum ’extravaganza’ that looks set to become a second of understanding to develop more talent in South digital dividend. Efficient use of the spectrum is a America and the Caribbean, while Microsoft’s constitutional goal in Mexico, revealed Adriana Pedro Julio Uribe-Bermudez told delegates about Labardini Inzunza (IFT, Mexico’s regulator) but the the company’s programmes in public schools and objective is not simply economic efficiency – there the success of white space technology in Africa are also coverage and affordability considerations. and Jamaica. She also reported on the regional harmonisation

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effort in the 600/700 MHz band, with five neighbouring countries involved. In Costa Rica the big issue is to assign the large amount of spectrum currently available, as Maryleana Méndes Jiménez (Sutel) explained. The lengthy process needed to set up auctions, which involves the political domain, requires a full reorganisation of frequencies from broadcasting. A new auction is planned for 2017, but many aspects of the auction design still remain to be defined. Discussing best practice in spectrum management, Sebastián Kaplan (Millicom) highlighted the importance of clear mechanisms for licence renewal and consideration of the overall investments involved when setting prices. Sebastián Cabello (GSMA Latin America) added that the revenues realised in the past are not really a good guide for the future, since market conditions have changed enormously in the past ten years. He further argued that coverage requirements need to be carefully researched to ensure they are viable and that developing secondary spectrum markets is another important avenue, but so far only Mexico has implemented rules, while Peru, Colombia and Chile are planning to do so. REGULATING FOR INNOVATION AND INVESTMENT Designing policies for universal connectivity, observed Luis Andrés Montes Bazalar (Fitel, Peru), requires all government departments to work together, as the infrastructure is pervasive and will impact other important sectors like education and health. There was wide consensus in the discussion, that sectoral divisions make it difficult for change to become systemic and ensure that benefits are widely shared. Having a national plan (and sticking to it) does appear to make a difference – not immediately, but within five to eight years. Juan Manuel Wilches (CRC, Colombia’s regulator) added that to promote growth and development we need the best combination of infrastructure and demand, but the focus has usually been only on supply. Operators gave their suggestions for a healthy, sustainable sector. Alejandro Cantú Jiménez Top: Alejandro Cantú Jiménez (América Movíl) argued for simple, predictable access rules (América Movíl) argued for simple, predictable Middle: interventions from the audience; below: lunch! access rules, with third-party access requirements as the rule and exemption as the exception. Elizabeth Rojas Levi (Nokia) reported Nokia’s drive to produce technology that is open and easy to install and REGIONAL REGULATORS FORUM maintain, which is crucial to ensure the gap The IIC’s Regional Regulators Forum was held in Miami on between the super-connected and those who are Wednesday 18 May, just before the 2016 TMF dedicated to the completely unconnected – still 45% of the world Americas. Key issues discussed at the RRF included: population – is bridged and not increased. l Regulatory tools for the converged ecosystem – using merger Olivier Puech (American Tower) stressed that conditions to impose good behaviour on the big players rather than local government should be aligned with the the same rules for the entire industry; diferent responses to the objectives of national government, while the challenges posed by OTT players; the importance of conducting difficulties linked with market fragmentation were research into consumer behaviour. highlighted by Andrea Giuricin (University of Milan l How to ensure a level playing feld in the communications sector Bicocca, Italy). In the discussion, the point was – introducing competition issues in the design of spectrum auctions; made that sustainable business models require geographical constraints and competition; using insights from other transparent bidding processes and regulators who utilities. are well informed about consumers and changing l Regional integration – abolishing roaming as a response to free usage patterns. OTT services; sharing intelligence across regulators; achieving scale as a region; lessons from the EU’s drive towards a digital single market. CRISTINA MURRONI is a telecoms and media analyst. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 9 INTERVIEW Q&A With DANIEL SEPULVEDA, US communications ambassador

Q WHAT IS YOUR POSITION? a whole. So with policy issues, our primary mission, A My full title is deputy assistant secretary of and our policy imperative, is connectivity, such as state and US coordinator for international with our Global Connect Initiative, which aims to communications and information policy. I am the get 1.5 billion people online by 2020. representative of the US for various multi- and On the administration side, one of the things that bi-lateral communications negotiations with other we’ve tried to do at the State Department is to ensure countries and organisations in areas such as the that we are institutionalising the prioritisation of digital economy and internet governance. The digital economy issues within the organisation. The post is authorised by Congress for our secretary of President has recently issued an executive order to state (John Kerry), and carries the legal rank of make global connectivity a primary goal for the ambassador and it’s a political appointment. administration, ensuring that the State Department It does carry some power but I see the same status has a coordination lead across agencies to promote in my counterparts, such as Roberto Viola, head of connectivity in programmatic and policy work. DG Connect at the European Commission, with We are developing a curriculum and identifying whom we have recently had our annual US- people who have digital economy responsibility. European Union information society dialogue. I have just run our first webinar for them on how to identify communities they need to work with in Q AND HOW DID YOU COME INTO THE ROLE? multi-stakeholder settings. A I have a masters in public policy and spent 12 years in our Senate conducting oversight on Q SO CONNECTIVITY IS THE KEY POLICY ISSUE... various issues for three senators – Barbara Boxer, A Right. It’s connectivity and the legal and Barack Obama and John Kerry. I became particularly regulatory environment that you create to interested in the communications needs of people encourage it. A second issue is internet governance and the democratisation of opportunity through and its international structure and ensuring that we access to information – the ability to challenge preserve the multi-stakeholder system. A third is an power and organise array of other regulatory issues that are still being We believe that the others to do the same, debated and for which there are no universally and make the most of accepted definitions of what the right or wrong way architecture of the yourself as an economic to go is. These include privacy and cybersecurity. internet as open and actor. I care deeply about these issues. A particular Q INTERNET GOVERNANCE IS A BIG TOPIC... enabling the free flow time for me was when I A Yes. You can think about it in its minimal sense, of data is in the global visited Barbara Boxer’s which is the management of the internet and public interest. constituents in East Palo its core infrastructure. That is the jurisdiction Alto in Silicon Valley – of ICANN, and the Commerce Department’s this is a poor immigrant National Telecommunications and Information area next to a much wealthier one. I was looking at Administration. ICANN is the premier multi- things such as how schools were using computers stakeholder institution in the larger rubric of and how people were accessing government internet governance. We have defended its services, and it really clicked with me that here independence and responsibilities due to its were two communities that were physically very effectiveness in this space. close to each other, but were worlds apart. The The larger view is about international and poorer part really needed the very technology domestic law and regulation that applies to access services that Silicon Valley was busy producing for to, and the use of, communications using the the rest of the world. internet protocol. So then you have a debate about everything from competition law, to data Q HOW DO YOU DESCRIBE YOUR AGENDA? protection, to state on state activity. We do divide A I divide it into two things. First are policy issues those responsibilities up within the State and the second are administrative issues that relate Department. My colleague, Chris Painter, is the directly to the operations of the State Department as advisor on ‘cyber’ issues to the Secretary of State,

10 InterMEDIA | July 2016 Vol 44 Issue 2 www.iicom.org INTERVIEW

greater control on their people, which creates an experiential fragmenting that in turn raises costs and reduces utility of access to the network. At home, we are firmly behind our Open Internet Order, which has just survived a court challenge. We don’t promote our specific rules to the world, but we have been successful at the World Summit on the Information Society (WSIS+10) review in uniting with nations that also have open internet and net neutrality rules. Q IS PROMOTING CONNECTIVITY AN ALTRUISTIC ACTIVITY? A Not really – we see that every additional person on the network adds value for everyone else. The more people that exist on the global internet the greater and takes the lead role on the UN’s group of Ambassador access our people have to them both as consumers governmental experts on cybersecurity, for example, Daniel Sepulveda and global citizens to have exchanges of ideas and which deals with state on state behaviour on the commerce. But yes, beyond that there is the internet. I have responsibility for all of the multi- democratising force of the internet and the human lateral organisations that deal with economic issues, rights imperative to ensure that people around the the ITU, OECD, ASEAN, EU etc. And I also take world have access to a network that enables them to responsibility for managing and coordinating across reach their full potential. the agencies our bi-lateral annual dialogues for specific key markets, like the one that we just Q WHAT ARE THE MAIN DIGITAL ECONOMY BARRIERS? concluded with the European Commission. We do A The biggest one I see is thinking of ICT as an end in those with other markets as well – Mexico, Japan and itself, and where countries use law and public policy specific markets within Europe, India and others. to force the development of an ICT sector, such as a localisation requirement or manufacturing mandate, Q THE NUMBER OF MEETINGS AND PLAYERS IS VERY or discriminatory taxation of products. I understand CONFUSING TO OUTSIDERS... why people want to develop their own sectors, and we A It’s mind boggling to those of us who are insiders. don’t have a problem with that, if it’s done through I think that there’s something to be said for a incentive mechanisms such as investing in the digital mechanism to make the internet governance system, skills of a country. What we don’t want is the cost of in particular, more user friendly. There’s going to be a imposing artificial barriers to participation in lot of meetings, because the issues are so disparate. markets for external actors. We are though seeing Clearly though the 11th Internet Governance Forum more ministers and heads of state making the (IGF), which is scheduled for Mexico in December, is broader digital economy a priority, and we closely the premier gathering of this year in the field. The watch initiatives such as the EU’s digital single Freedom Online Coalition event in Costa Rica this market and Digital India. This year, John Kerry hosted October is also important. I was of course at June’s a World Bank meeting on Global Connect. OECD ministerial meeting on the digital economy and can commend the report by Carl Bildt released there Q ARE COUNTRIES’ FINANCES NOW A BIG OBSTACLE? [One Internet] and we were happy with the Cancún A I think that the vast majority of the challenges for Declaration’s commitment to the open internet and providing connectivity for development around the free flow of information. I think in general our world are neither technological nor financial – they community needs to be respectful of people’s are policy challenges. You can see it by comparing resources and make clear the purposes of any meeting countries that are in the same part of the world that so a person in a ministry in a developing country or a are having different outcomes. Look at Chile – it has civil society actor can decide whether to go. 72% coverage, or Colombia where 90% of their towns are covered. Brazil and Mexico are both making Q WHO IS STANDING IN THE WAY OF AN OPEN INTERNET progress, and Argentina now has this as a priority. – AND IS IT IN DANGER OF FRAGMENTATION? There’s a lot of investment money in the world A There are authoritarian regimes that argue that looking for a place to land but it needs a safe home their sovereign right is to control or govern their with certainty on regulation and a welcoming people, and that extends to the information that environment for investment. Companies are prepared enters and exits their country. That is not our belief: to extend the networks to where it makes sense from we don’t believe that is consistent with human rights, a market perspective, and where it doesn’t make and we don’t think it’s actually operationally sound. sense you need to have strong universal service funds We believe that the architecture of the internet as or other public-private partnership mechanisms. open and enabling the free flow of data is in the global public interest for innovation and wealth creation, and Q DO YOU HAVE PLANS FOR NEXT YEAR, WHEN THE US human rights, and we will continue to defend that ADMINISTRATION WILL CHANGE? proposition. As for fragmentation, it depends what is A I’m a public servant at heart but could move to meant. Technically, the internet is on a sound footing, the private sector. I will though want to continue but we have seen an up-tick in regimes exerting working to help empower people through technology. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 11 BIG DATA

COMPETITION AND BIG DATA

The legal highlights of a joint report by the French and German competition authorities on the use of data are discussed by TIM COWEN

his May, France’s Autorité de la concurrence and number of cases as even a dominant company cannot, in Germany’s Bundeskartellamt (BKA) published a principle, be obliged to promote its competitor‘s business... Tjoint report, ‘Competition law and data’.1 On the These ECJ requirements would only be met, if it is same day as the release of the report, the Autorité demonstrated that the data owned by the incumbent is announced a ‘full-blown’ sector inquiry into truly unique and that there is no possibility for the data-related markets. The BKA has already been competitor to obtain the data that it needs to perform investigating Facebook for possible abuse of data its services.” use. The new report reviews issues for competition Interestingly, it might be thought that since authorities involved with taking competition cases many sources of data are non-replicable, then a relating to big data and data collection in the digital collection of non-replicable sources, leading to a economy. It reviews data as a source of market unique treasure trove of valuable data, might be power relating to transparency and data-related relatively easily demonstrated to be an essential anti-competitive conduct. facility.

THE MARKET FOR DATA Discrimination. Discriminatory access to data is The report supports the point made by various considered to be a potential exclusionary abuse, and commentators that, like any other economic the case of Cegedim is reviewed: product, data is something that can form the basis “Cegedim, the leading provider of medical information for market power, and the substitutability between databases in France, refused to sell its main database different types of data needs to be assessed in (called OneKey) to customers using the software of Euris, a working out whether market power exists or arises competitor of Cegedim on the adjacent market for customer from a hoard of data. (See also an article in which I relationship management argue that companies can have unique treasure Vertical integration (CRM) software in the health troves of data that are a source of market power.)2 sector, but would sell it to See too the panel for how the report positions data. can entail other customers. The French In particular, the report recognises that in discriminatory competition authority relation to mergers: considered such behaviour as “Also, in assessing possible restraints of competition access to discriminatory and concluded resulting from a merger, competition authorities may have information and that, given that OneKey to cast a close look at the advantages the new entity will distort competition. was the leading dataset on have by combining different sets of data. In particular, a the market for medical combination of different data troves could raise competition information databases and concerns if the combination of data makes it impossible for that Cegedim was a dominant player on the market for competitors to replicate the information extracted from it.” medical information databases, such a discriminatory This was a central issue in Facebook’s acquisition practice had the effect of limiting Euris’s development of WhatsApp, where I acted for interested third between 2008 and 2012.” parties in making their case. More generally, the report recognises the issues that arise with platforms where vertical integration EXCLUSIONARY PRACTICES can entail discriminatory access to strategic The report canvasses the various exclusionary information with the effect of distorting practices that may be available to a dominant competition: player whose market power is derived from its “For instance, some marketplace operators also position in data. operating as online retailers may get access to information about their competitors selling on that marketplace and Refusal to access. For example, data could be about the behaviour of consumers. By identifying the range an essential facility and the basis for an access of products that are globally more in demand, an case, but: integrated platform could then be able to more efficiently “The ECJ [European Court of Justice] has circumscribed adjust the range of products it sells as well as the pricing of compulsory access to essential facilities to only a limited its products. A similar effect could be achieved by such a

12 InterMEDIA | July 2016 Vol 44 Issue 2 www.iicom.org platform, if it restricted the information that their competitors operating on the marketplace get about the transactions they are involved in. Such information transfers and limitations could make the integrated platform operator more competitive than its competitors operating on its marketplace.”

Exclusive contracts. These are assessed to be potential vehicles for anti-competitive strategies. This is not news but it may be of interest to note that the European Commission is currently pursuing Google for the anti-competitive strategy of requiring handset manufacturers to exclusively preload the suite of Google apps onto handsets position to a company which owns the dataset over so that they are preinstalled and available to its competitors in the market for data analytics. customers straight out of the box – to the exclusion The joint report in effect recognises a market for of other apps that those handset manufacturers data analytics and refers to the cross-usage of data might otherwise choose to install. The joint report for competitive advantage, which can have goes on to note that: foreclosing effects. “Exclusive agreements can exclude rivals, especially when they are concluded by dominant firms. A network of DATA AS A VEHICLE FOR PRICE DISCRIMINATION exclusive agreements might be even more problematic, not It is noted that data can facilitate price only under Article 102 TFEU [Treaty on the Functioning of discrimination: the European Union] but also under Article 101 TFEU. For “Indeed, by collecting data about their clients, a company instance, in its Article 102 TFEU proceeding against Google, receives better information about their purchasing habits the European Commission looked into a series of exclusive and is in a better position to assess their willingness to pay contracts concluded by Google in the search advertising for a given good or service. Provided that it has market market that might foreclose competitors from being able to power, the company would then be able to use that challenge the company.” information to set different prices for the different customer groups it has identified thanks to the data collected.” Tied sales and cross-usage of datasets. Data collected This area is complicated, as the economic on a given market could be used by a company to consequences of price discrimination are develop or to increase its market power in another ambiguous, with economists often arguing that market in an anti-competitive way. For instance, in discrimination reflects a consumer’s willingness to a report by the UK Competition and Markets pay, and that competition law is not concerned with Authority (CMA),3 the possibility is mentioned of redistribution. Whether that is truly the case is tied sales whereby a company owning a valuable outside the scope of this article, but suffice it to dataset ties access to it to the use of its own data say that policymakers are questioning the received analytics services. wisdom that perfect price discrimination can be As the CMA notes, such tied sales may increase good for consumers in monopoly environments or efficiency in some circumstances but they could whether such an approach simply leads to everyone also reduce competition by giving a favourable being charged monopoly prices.

BIG DATA FROM THE STANDPOINT OF COMPETITION AGENCIES

In ‘Competition law and data’. the two models that rely on data are reviewed. many respects, the most interesting competition authorities do say that “the In competition analysis, the following one from a competition standpoint”. collection, processing and commercial issues are now arising concerning data: In assessing big data and market power, use of data is often seen not as a l The collection and exploitation of in a central part of the report, it covers: competition law issue but rather as an data may raise barriers to entry and be a l Power in data-driven online industries issue which concerns data protection source of market power – multisided platforms, ‘multi-homing’ enforcement”. But the emergence of l There may be reinforcement of (where consumers can get services from frms such as Google that have huge market transparency that impacts the multiple suppliers), and market dynamics turnovers based on the commercial functioning of the market (eg. frms can (such as how new entrants can prosper) use of often personal data has changed collude on prices) l ‘Data advantage’ cases from the past, the discussion to the role of data l There are several types of data-related both digital and non-digital in economic relationships and the conducts of an undertaking that might l Data scarcity issues application of competition law. raise competition concerns (as discussed l Data collection issues. The report sets out the types of data in the main part of this article). The report certainly highlights a lot of and information, noting that so far the The report considers that the use of issues and is also notable for the joint competition discussion focuses mainly data “possibly contributing to market approach by the French and German on personal data, and various business power is most likely to arise and is, in authorities. Marc Beishon

www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 13 BIG DATA

DATA AND PRIVACY There is a The report agrees with In Facebook’s acquisition of WhatsApp the remarkable statements made by the European Commission confirmed the established UK CMA, by saying: view as set out by the European Court of Justice (in statement that “In merger control cases, the the case Asnef-Equifax 2006) by stating: privacy can be question of data privacy might “Any privacy related concerns flowing from the increased particularly become relevant from concentration of data within the control of Facebook as a taken into account a competition standpoint if a result of the transaction do not fall within the scope of the in competition law. given undertaking benefits from a EU competition law rules but within the scope of the EU strong market power towards its data protection rules.” end users. Indeed, firms that gain Nevertheless the ECJ has gone further when a powerful position through a merger may be able to gain considering ‘by object’ restrictions of competition further market power through the collection of more law. In the Allianz Hungária case (2013) for instance, consumer data and privacy degradation. If two horizontal the ECJ held that the impairment of objectives competitors compete on privacy as an aspect of product pursued by another set of national rules could be quality, their merger could be expected to reduce quality.” taken into account to assess whether there was a restriction of competition (in this instance, by DISCUSSION OF ACADEMIC LITERATURE CASES AND object). Referring to German competition law, the CONCLUSIONS German Federal Court of Justice has stated that The remainder of the report reviews the literature, contract terms incompatible with the laws regulating cases and arguments on both sides of the debate, general conditions and terms of trade might be an and is worth considering in detail for those closely abuse of a dominant position if the use of the terms involved in these issues. Among its conclusions are: is based on the firm’s market dominance. “To date, the risk of foreclosure associated with the The following is a remarkable statement from the concentration of data in digital industries has mostly been joint report that privacy can be taken into account looked at in the context of merger control. This does not in competition law assessments: exclude the use of antitrust enforcement tools to tackle “Indeed, even if data protection and competition laws behaviour related to the collection and processing of data, serve different goals, privacy issues cannot be excluded from similarly to what has already occurred in some non-digital consideration under competition law simply by virtue of markets. There are several possible ‘data-based’ conducts, their nature. Decisions taken by an undertaking regarding whether exclusionary or exploitative, which could, the collection and use of personal data can have, in parallel, depending on the circumstances of the case, lead to implications on economic and competition dimensions. enforcement action... Therefore, privacy policies could be considered from a “However, the theories of harm underlying the prohibition competition standpoint whenever these policies are liable to of such conducts are premised, for the most part, on the affect competition, notably when they are implemented by a capacity for a firm to derive market power from its ability dominant undertaking for which data serves as a main to sustain a data trove unmatched by its competitors. input of its products or services. In those cases, there may be A case-specific assessment of the reality and extent of the a close link between the dominance of the company, its data ‘data advantage’ needs to be undertaken to bear out or collection processes and competition on the relevant reject this premise. In doing so, consideration should be markets, which could justify the consideration of privacy given at the outset to the features which are particularly policies and regulations in competition proceedings.” found in online markets (network effects, multi-homing, and market dynamics) which may or may not be conducive Change wrought by the Treaty of Lisbon. The report to market power, before proceeding to determine whether goes on to note that the Treaty of Lisbon changes data contributes to the creation or strengthening of the underlying position, and may change the market power.” factors that can be taken into account in And when reviewing the contribution that data competition law assessments: can make to market power: “Article 167(4) of the Treaty on the Functioning of the “Two aspects of particular relevance when looking at European Union provides that, ‘The Union shall take data’s contribution to market power can be identified: the cultural aspects into account in its action under other scarcity of data or ease of replicability, on the one hand; provisions of the Treaties, in particular in order to respect whether the scale/scope of data collection matters, on the and to promote the diversity of its cultures.’ Article 16 of the other.” TFEU, while not explicitly mandating that data protection Overall the report is a welcome, authoritative aspects be considered in all actions conducted by the EU REFERENCES and useful contribution to the way in which pursuant to the Treaties, does affirm that ‘everyone has the 1 Autorité de la concurrence these matters will be addressed by competition and Bundeskartellamt right to the protection of [their] personal data’. (2016). Competition law and authorities and the courts, and the themes are “Even as it remains open to question whether these data. bit.ly/23GUVuq likely to be important at a global level. provisions carry specific obligations for competition 2 Cowen T. (2016). Big data as a competition issue: authorities, the European data protection supervisor has Should the EU Commission’s TIM COWEN leads the competition law team at Preiskel advocated, in 2014, a shift in policy and a ‘more holistic approach be more careful? & Co, London, where his practice covers a full range of European Networks Law & approach to enforcement’, in which a more systematic Regulation Quarterly 4 (1). technology and competition law matters. He is also an dialogue is maintained between competition, consumer and 3 Competition and Markets IIC board member. This article reflects his own views and data protection authorities, ‘wherever a specific case arises Authority (2015). The does not comprise any legal advice. The joint paper also commercial use of in which consumer welfare and data protection concerns consumer data. contains copious references for further reading about this appear to be at stake’.” bit.ly/1d4fihB important area of competition law.

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SMARTPHONES: LIBERATION OR LIMITS? As more people, especially the less well off, have only a smartphone to access the internet, there are signs that a new type of digital divide could develop. Ofcom’s ALISON PRESTON describes new research carried out in the UK

his article is about the people who use their Stopped in respondents saying they were smartphone-only in smartphone as their predominant way to go her tracks: screening interviews, once they began the detailed online. The number of people in this group is older people interview they would mention that they used may face more T growing – research by Ofcom, the UK regulator, barriers with another device in some way, at some time, even published this year shows that 16% of people in the smartphones if by proxy. Therefore, the focus is on users who UK say they use only a smartphone or tablet to go are smartphone by default, as distinct from online, up from 6% the previous year. And 6% say smartphone-only. they only use a smartphone – rising to 13% of those from the lowest socio-economic groups. WHAT DID WE DO? At Ofcom, we are keen to understand how We commissioned a research agency, Revealing people’s media use and attitudes are evolving, and Reality, to carry out a range of detailed interviews so we decided to explore this issue through in-depth with 26 people from across the UK (Glasgow, Leeds, research, to find out more about the motivations, Belfast and Cardiff). These people came from a wide and the strengths and drawbacks, of such range of backgrounds, and we particularly wanted behaviour. This article summarises the key findings to look at vulnerable members of society, such as from our published report.1 the homeless or recent migrants, to see what impact Note that initially, we were going to focus on being smartphone-only had on their particular smartphone-only internet users. However, despite circumstances. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 15 DIGITAL DIVIDE

We classified participants into two main groups Collating or comparing information, products or according to the reasons for which they became services from a range of sources was also seen to be ‘smartphone by default’ internet users: ‘smartphone difficult on the small screens. In a similar vein, by choice’ and ‘smartphone by circumstance’. We many respondents struggled to create information identified two further sub-categories: those in trails online, rarely using bookmark functions to ‘vulnerable circumstances’ who were ‘smartphone save information sources, and instead trying to take by circumstance’ as a result of difficult living screenshots or emailing links to themselves. conditions; and ‘microbusiness owners’, who could be in either group, but tended to be DO WELL-DESIGNED APPS HAVE POSITIVE IMPACTS? ‘smartphone by choice’ due to device portability Many apps and mobile-optimised websites have and ease of use. streamlined the user experience, making tasks easier and more efficient by doing the ‘hard work’. WHAT DID WE FIND OUT? For example, navigation apps such as Google Maps Smartphones can be both liberating and limiting. and Citymapper plan out routes on behalf of Across all of the participants, there were a number respondents who simply need to input their start of common benefits to using smartphones as a and end location. Banking apps were praised by principal means to go online. The mobility and users who felt they were often the most easy to use immediacy of smartphones – a device that mechanism to view account details and conduct participants always had with them and switched on financial tasks. – meant that information searching and access were often more efficient than they might otherwise “I mean banking, it’s so easy. I actually think the have been. Communication with friends and family app is easier to use than the website. My account was seen as almost universally improved by a information is so nicely laid out.” number of apps and websites that maintain global Roisin, 40, smartphone by choice, iPhone 5s contact. Navigation of local or new geographic areas was enhanced by navigation apps and the mobility However, a relatively low understanding of the of the device. Finally, viewing either instructional or functionality of smartphones among respondents entertaining video content meant respondents often meant a lack of experimentation on their were able to learn and try new things, and access devices. Few respondents were therefore actively different types of content. reflecting on what they could do with their smartphone, or pushing it to really work for them. “In my work, I need to be in four places at once all the time. My smartphone allows me to do that. I DO SMARTPHONES OFFER MORE OR LESS CONTROL? couldn’t do it without having this in my pocket.” Smartphones can help put people back in control of Carl, 34, microbusiness owner (events manager and DJ), their lives, but issues such as data scarcity may also Samsung S5 lead to people putting off important tasks. The unprecedented “I’ve been in hostels so I haven’t talked to my son ability to go online as in ages. The good thing is that I asked him to be A relatively low a result of having a my friend on Facebook and he said yes. We can understanding of smartphone seemed to now stay in touch on there.” have a number of benefits, Carly, 41, vulnerable circumstances (homeless), Samsung the functionality in particular helping S4 Mini often meant a lack people to feel in greater control of their lives, In contrast, however, there were also participants of experimentation. health, housing and who felt the impact of the limitations of being finances. We saw a number ‘smartphone by default’, especially those who were of examples where people were able to use their so as a result of circumstances. smartphones to improve their situation, such as Our research identified a number of drawbacks. Beth (aged 25) who had stopped going into her One was that participants often felt under pressure overdraft, and thus avoided paying the associated to complete tasks quickly to prevent the erosion of fees, since she was more easily able to look at her their data allowances. Another was that many bank account on her app every day. found creating, editing and sharing any document In contrast, the research also uncovered of length in a Microsoft Office application almost behaviours demonstrating that data poverty impossible. Respondents trying to amend and (perceived and real lack of mobile data allowance) share their CVs, for example, often felt the impact was leading respondents to rush tasks, causing of this limitation and felt the need to find a delays in completing tasks or, in the worst cases, different device. abandoning activities like job applications. Concerns about using up their data packages meant “It’s hard to see what I’ve written before on the that some respondents were rushing to complete small screen. I’m constantly scrolling up and tasks when they were not connected to WiFi. This trying to read it and then scrolling back down to trend was far more common among ‘smartphone by write it. It’s so difficult I might as well just wait circumstance’ respondents relying on public WiFi, and try to use the library computers.” as they tended not to have home broadband Gary, 44, smartphone by circumstance, Microsoft Lumia 640 connections.

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“I need to register to vote but it didn’t tell me I as a PC or laptop, either in a library or at family or needed to know my National Insurance number. friends’ homes, even if this meant waiting some I’ve already used up too much data doing the form time to do so. Such delays had an impact on the in the first place.” productivity, as the following examples show. Charlie, 18, smartphone by circumstance, girlfriend’s Samsung S4 “If it’s something important like government stuff or replying to formal emails I go to the library – I These self-limiting behaviours, coupled with the like to see them on a proper screen.” perceived role of the smartphone as a leisure or Gerry, 42, smartphone by circumstance, iPhone 5s social device, may prevent some people from attempting to complete more serious or complex Charlie, aged 18, would travel 90 minutes each way tasks on their smartphones. Furthermore, limited to her girlfriend’s family home to use her laptop for awareness of data packages and contracts imply job applications. Beth, 25, from Cardiff, had recently that there are some barriers to smartphone users been job searching, and had wanted to use a making the most appropriate purchasing decisions. computer with a keyboard and mouse to write applications and amend her CV – the larger screen ARE SMARTPHONES SUPPORTING OR INHIBITING THE size and input tools made DEVELOPMENT OF DIGITAL SKILLS? her feel more in control of For the most digitally excluded, smartphones can Using public her applications. She offer access to a world otherwise off-limits, and a computers had would regularly travel by chance to learn new digital skills. However, heavy bus to her local library, reliance on smartphones may inhibit users in further drawbacks about 20 minutes away, developing alternative digital skills, such as typing. for some and book a slot to use the For those who had had limited exposure to digital participants. computers. These technology, the ability to buy an affordable computers were only smartphone with a call and data package offered bookable for one hour at a interactions with the online and digital world time, meaning that Beth had to leave the library for that they had previously not been able to access. some time before booking another, later slot. This was particularly true for the ‘vulnerable Using public computers had further drawbacks circumstances’ respondents, whose chaotic lives for some participants. In addition to the time and challenging circumstances had placed digital needed to travel to a library, and the cost of so literacy low down their priority list or made it doing, some participants were also reluctant to almost impossible. This was also an issue for a carry out certain personal online activities there. minority of older respondents, especially for those For example, when Polly, 50, had a health scare, who hadn’t engaged with technology during their she did not want to ask library staff to help her working life. In this respect, their smartphone decipher the information from health-related presented them with a steep learning trajectory. websites, because she was embarrassed about her Respondents like Anne, 60, were excited about the own lack of knowledge. new things they were learning about technology and what it could do for them. “I feel like I should know some of these things. However, the research also uncovered a range of I don’t want to have to ask for help to just people with greater experience of digital technology understand the information. It’s quite who demonstrated limited computing skills. Typing embarrassing.” skills, for example, were at times very low – in Polly, 50, vulnerable circumstances, Samsung S5 particular among the younger respondents looking for work and the ‘smartphone by circumstance’ Chester also felt uncomfortable about the prospect respondents who were not using keyboards at work. of dealing with his finances in the public library. Furthermore, the low skills we witnessed in technological troubleshooting and file/information “You don’t like doing everything in public do you? management seem to indicate that ‘smartphone by Some things are personal, and I’m a private default’ internet users are not always developing person really.” some of the core skills which would potentially be Chester, 50, smartphone by circumstance, Samsung S4 beneficial in a range of work environments. In summary, this project has identified and PARTICIPANTS’ EXPERIENCES developed our understanding of a growing, and Finally, some direct examples from the participants potentially vulnerable, group of consumers. They are illustrate the realities of living with smartphone- vulnerable in their lack of understanding of mobile only access, and its impact on job seeking and data use, which may lead to high or unexpected accessing more personal information. Many bills, or conversely to minimising use and narrowing participants felt that smartphones were not the best their online capabilities. Such narrow use, and a device for formal communication. This was due to lack of skills and accessibility generally, point to the REFERENCE various practical reasons including the screen size, 1 Ofcom (2016). need to address a potential continued digital divide. but also because they tended to be seen as an ‘Smartphone by default’ ‘informal’ means of communication. These internet users. ALISON PRESTON is head of media literacy research participants preferred to access another device such bit.ly/29fAR1Y at Ofcom, the UK’s communications regulator. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 17 EUROPE IN THE ROUND (PART II)

PETER ALEXIADIS concludes his l The twin goals of greater investment and less regulation tour of the trade-offs inherent in l Conflicts between greater consolidation and less communications regulation regulation l How pan-European markets respond more to commercial incentives than harmonisation his is the second part of an article that explores l Realising the limits to the ‘technology neutral’ the fundamental policy drivers that should concept. shape the economic regulation of the See Intermedia September 2015 for the article T electronic communications sector by 2020, that covers these four trade-offs. I now cover the with reference to Europe. My approach is not to remaining three. consider the merits of each individual policy item in its own right, but to explore a range of issues ACKNOWLEDGING THAT A NEW ACCESS which involve a series of policy trade-offs that REGIME MIGHT BE NECESSARY legislators and enforcement agencies cannot afford Since the adoption of the 2002 EU regulatory to ignore. framework for electronic communications, the In part one I looked at the first four of seven such analytical model used to determine which parties trade-offs, namely: should be subject to wholesale access obligations

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l The success of local loop unbundling across the EU has been very mixed, and the ability of operators to climb the so-called ‘ladder of investment’ has been called into question in many member states.4 l The patterns of fixed network deployment one finds across the EU are many and varied, especially depending on the particular iteration of next- generation access policy that has been followed by various member states. What these changes have meant over the course of more than 12 years is that fundamental questions need to be asked as to what policymakers seek to achieve through the access regime – namely, greater competition in retail markets or other industrial policy goals. This will mean that questions are inevitably asked as to whether the current regime which foresees the regulation of operators with significant market power (SMP) continues to remain fit for purpose in light of all the changes that have occurred. Aside from those who might advocate a continuance with the current SMP access regime, there will be those who advocate that mandated access to networks is no There are real longer necessary because of the current state of benefits in allowing competition, while others the market to will argue that different regulation is necessary to deliver competitive ensure that competitive network offerings. access alternatives continue to exist in an environment characterised by increasing consolidation and market exit. In my view, if trade-offs need to be made, there are real benefits in allowing the market to deliver competitive network offerings in the absence of regulation, at least where withdrawal is based on reasonable assumptions about market entry and where regulatory intervention can be triggered should access alternatives not materialise. Of the alternative regulatory models available to challenge the SMP regime, some of the models worthy of consideration should be: l The ‘essential facilities’ test5 l A prescribed ‘bottleneck’ test6 which is defined specifically with telecoms networks in mind has been subject to pressure in five significant l A modified, or sector-specific version of the respects: ‘substantial lessening of competition’ test7 currently l In the fixed sector, significant losses in market found in the EU merger regime. share at the retail level have occurred in the We should discount the possible application of provision of broadband services, while partial the old open network provision (ONP) model of the substitution has been evidenced for voice services 1990s which imposed access obligations on by new applications such as WhatsApp, and the operators with 25% share of a relevant access creation of potentially complex oligopoly situations market,8 given that its only redeeming feature is its has been identified by some regulators in those simplicity (and hence, ease of application). However, jurisdictions where cable TV networks exist.1 its character as a ‘blunt instrument’ does not lend l The ever-increasing consolidation that has been itself easily to the complex policy trade-offs that occurring among mobile operators, and the need to be made. attendant remedies to which those operators are Of the options set out above, the essential subject under the EU merger review process.2 facilities doctrine seems to be setting too high a bar l A proliferation of symmetric regulation for intervention by regulators, given that it is alternatives has occurred through the various already a well understood and defined concept revisions to the regulatory framework (including under competition rules and is clearly a very through the recently adopted directive 2014/61/EU).3 difficult standard to satisfy in legal terms. By www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 19 REGULATION

contrast, the concept of a bottleneck is already There will be market failures based on the found in the current practice of the European possession and manipulation Commission under its administrative practice concerns in some of large amounts of data and under the EU regulatory framework. In addition, its quarters that ‘big access to ‘eyeballs’. This will sui generis nature provides sufficient flexibility to data’ will be a basis be an environment in which national regulators to allow a sector-specific over the top (OTT) operators definition to be generated which is compatible with on which to entrench play an increasingly the use of ‘soft law’ instruments that clarify its market power. important role, both in terms scope (especially as new technology is introduced). of providing countervailing The sector-specific use of a modified form of the bargaining power against EU merger regime test to identify a ‘substantial traditional operators, by providing indirect pricing lessening of competition’ (SLC) is not without merit, constraints against them, and by virtue of being the especially since so much de facto access regulation focal point of new revenue-generating services. As is being effected through the merger review process such, their competitive impact will increasingly (at least in so-called ‘gap’ cases falling short of play a pivotal role in the decisions of national collective dominance). Perhaps a sector-specific regulators as to whether asymmetric access adaptation of that test might be something along regulation should be removed or maintained (much the lines of an ‘unavoidable trading partner’ test on as voice over IP communications played a key role in which to base some form of access regulation where the gradual expansion of voice markets). it is felt that an access option is important to sustain However, it will also be an environment where competition, irrespective of whether dominance parties with privileged and widespread access to exists at the retail level. However, the introduction data might be tempted to leverage such access into of such a flexible test under the EU regulatory a wide range of emerging markets, both at the framework would in all likelihood also require a expense of traditional operators and pre-emptively change in the current institutional decision-making against new entrants (Google’s Project Fi, an MVNO process shared between national regulators and the that’s running across several networks in the US, is European Commission. a good example). Aside from the potential which In my view, the proposed scheduling of 5G across exists for certain OTT providers to dominate key the EU member states for 2020 will generate such a bottleneck functions in the developing internet fundamentally new dynamic in the marketplace ecosystem, other OTT providers might be capable of (building on the 4G/LTE currently being deployed), adopting commercial strategies designed to produce that it will be appropriate to modify the existing a lack of service interoperability, especially as user SMP regime given that traditional concepts of communities globally might dwarf member state market power might no longer be associated with populations and lend themselves to being insulated incumbent fixed line networks and because the from certain types of competition as vertical concept of ‘collective SMP’ has proven to be technology ‘silos’ or ‘walled gardens’. exceedingly difficult to implement in practice. Moreover, there will be concerns in some quarters Moreover, given the increased deployment of fibre that certain players will be able to harness ‘big data’ to the home in urban areas, one needs to make a as a means of not only developing attractive service realistic appraisal of whether it is retail competition offerings, but also as a basis on which to entrench or wholesale access options that need to be market power, thereby creating a virtuous circle of promoted; if the former, we should not be surprised increasing market intelligence leading to greater if more widespread deregulation in urban areas is market power, linked by the effects of data the preferred option.9 By the same token, a manipulation;13 to this end, insufficiently nuanced departure from the technology neutrality principle data protection and consumer protection rules could see the possible mandated deployment of might unwittingly support such market power open architecture fibre networks (and accessible insofar as consumers might become increasingly internal wiring) as asymmetric measures.10 The contestable to those operators without access to possibility also exists that the functional separation such data. regulatory model pioneered in the UK might also These two conflicting roles of OTT providers will provide a basis for the winding-down of other forms inevitably call into question one of the cornerstones of ex-ante regulation.11 of the current EU regulatory framework, namely, whether any of the functions or services provided by THE NEED TO IDENTIFY EMERGING MARKET FAILURES such new market actors constitute a legitimate With the fundamental shift in values in the extension of the concept of an ‘electronic electronic communications value chain, whether communications network’ or an ‘electronic it be in the form of partial substitutes from communications service’.14 To the extent that the various applications such as WhatsApp,12 the EU regulatory framework is expanded to cover such commoditisation of voice services, the possible functions or services, however, the ability of the proliferation of mobile virtual network operators framework to address market failures will need to (MVNOs) from companies such as Google, and the adapt to be able to take into account a broader increasing demand for bandwidth-rich and data- range of discriminatory practices and refusals to rich services, the regulatory impetus might be provide interoperability. This might in turn require shifting from the identification of traditional a closer form of collaboration between ex-post market failures based on network dominance to investigations and ex-ante remedies, which will

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exert pressure on changes being made to existing ex-post access remedies now have the potential to institutional arrangements. be more effective and detail-oriented than their To be able to respond to such rapid commercial pre-2003 counterparts (ie. a year after the EU developments brought about by the inclusion of a regulatory framework was introduced).21 Most range of new market actors and through the importantly, a series of merger decisions adopted by realisation of formidable commercial and the Commission over the past few years, all of technological developments, the regulatory which have involved significant access obligations framework will no doubt require a flexible and spectrum divestitures, have drastically changed mechanism through which policy directions can be the face of the competitive landscape in many EU reconsidered for important strategic issues such as member states. The remedies adopted in those bundling, the role of discriminatory practices, merger reviews are often more intrusive than those margin squeezing across ‘converged’ service adopted under ex-ante intervention.22 offerings, access to certain types of content, the Also, the use of the sector inquiry tool in relation legitimate scope of the concept of ‘specialised to a number of problematic telecoms markets has services’ (in the context of the net neutrality rules meant that policy lessons have been cross-fertilised which came into force on 30 April 2016),15 etc. across the ex-ante/ex-post divide in relation to those The resolution of such issues will require affected markets. Finally, it is also true that there flexibility to be able to adapt to new technological has been an increasing consolidation of regulatory and commercial changes, and is likely to herald the and competition tasks among national regulators introduction of a competition-style approach into a over the past few years (the Netherlands’ ACM and regulatory setting, with the opposite trend already Spain’s CNMC are perhaps the most prominent being the case.16 Given that the net neutrality issue examples), which means that the adaptability of turns on the interpretation of key competition regulators to work across disciplines is enhanced. issues such as ‘discrimination’, the objective As a result of these developments, one must ask justification behind traffic management techniques the question seriously as to why the time is not ripe and the common welfare implications behind the for a radical overhaul of the ways in which the introduction of ‘specialised services’, the flexibility enforcement of the ex-post and ex-ante disciplines afforded by a competition-style analysis seems better complement one another. In my view, an integrated suited to the resolution of those issues than the approach is in all likelihood beneficial, and is prescriptive ex-ante approach.17 More broadly, it arguably the most robust might therefore be helpful to consider whether a There has been a solution when one is greater institutional role should be played by ‘sector pursuing so many inquiries’18 in the assessment of the potential yawning chasm overlapping (and at times market failures generated by such practices and the between the conflicting) policy range of policy responses thereto. Commission and interests. Second, there has THE NEED FOR A NEW INSTITUTIONAL BALANCE IN national regulators. existed for many years a DECISION-MAKING yawning chasm between The balancing of the above-listed policy tensions the degree of responsibility exercised by the suggests that any fundamental changes in policy Commission in its decision-making powers under its regarding the identity of those regulated and the Article 7 powers of review, on the one hand, and nature of what is regulated should also bring about national regulators when adopting decisions under at least two fundamental changes in the manner in the existing EU regulatory framework.23 The which the different institutional stakeholders former’s veto decisions under the regulatory cooperate in the enforcement process. framework (which are in any event, rare) are First, while European case law in the form of the assessed under the lower standard of review of Deutsche Telekom, Telefónica and TeliaSonera cases, ‘manifest error’ before the General Court in among others, has clarified the residual role which Luxembourg, while the latter are assessed according competition rules play alongside sector-specific to the much higher standard of review ‘on the regulation in the EU legal order, it is also the case merits’ before the national courts. that the two disciplines often take approaches In addition, there are very significant differences which at times contradict or compromise one in the ways in which member state courts accord another.19 At a minimum, the approaches are not legal value to the opinions of the Commission – of synchronised, so that decision-making occurs under which they must take ‘the utmost account’ – when different timeframes. Moreover, decision-making the Commission expresses its views on the under the regulatory framework is very much appropriateness of remedies adopted under the centralised in terms of the veto power enjoyed by Access Directive.24 This is because each EU member the Commission over many decisions of national state has a different legal tradition as to how it will regulators, whereas Regulation 1/2003 establishes a respect Commission opinions which do not have framework which decentralises decision-making in the force of law (because no Commission veto power the implementation of competition rules.20 exists with respect to the issue of remedy selection). In addition, the introduction of Regulation To complicate matters further, both BEREC (the 1/2003 has meant that settlements (similar to a US body representing European regulators) and the consent decree) now provide an alternative means Commission must accord to one another due of settling an access dispute, which means that deference by again taking ‘the utmost account’ www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 21 REGULATION

of one another’s opinions; in the absence of such Policymakers BEREC cooperation at an a phrase being imbued with any legal significance should not be earlier stage of the regulatory at the level of Community law, the institutional process. dynamic has become unwieldy and its decisions satisfied with Achieving all of these aims have not carried the force of legal certainty in many success with only a will be anything but a jurisdictions. straightforward task. As a result of these trends, the current process of handful of policies. However, the adoption of a decision-making is proving to be unsatisfactory holistic approach suggests since the inception of the EU regulatory framework that policymakers should not be satisfied with in 2002. This has led to great uncertainty at success with respect to only a handful of policies. member state level as to whether or not the The inter-relationships between the various policy decisions of national regulators could be vulnerable strands suggests the opposite – namely, that a to challenge depending on whether or not they successful overall strategy is one which seeks to differed in their views from the Commission in the revisit all the lessons learned from commercial, application by the latter of its own ‘soft law’ regulatory and institutional developments since the instruments and in the exercise of its discretion. adoption of the regulatory framework in 2002. Accordingly, in the wake of any revision of the EU regulatory framework, serious consideration has to PETER ALEXIADIS is a partner at Gibson, Dunn & be given to redressing the current institutional Crutcher’s Brussels office and visiting professor, King’s shortcomings which characterise decision-making College, London. The author would like to thank his by the three institutional stakeholders under the colleague, Charles Clarke, for his invaluable assistance framework – namely, the Commission, national in marshalling the research necessary to put this paper regulators and BEREC. Decision-making should together. All errors of analysis or judgement, however, arguably be more consensual earlier in the decision- remain the sole responsibility of the author. Thanks also go making process, while the confrontational aspects to the economists Ulrich Stumpf and Anthony Shortall for of the Article 7 review process need to be avoided. useful comments on an earlier draft of this paper. As noted above, the greater complexities of the marketplace and the sweeping nature of REFERENCES 1 For example, see BEREC (2015). Report on oligopoly analysis and regulation, and Commission cases M.7217 technological change also create greater pressure Facebook/WhatsApp and Case M.6281 Microsoft/Skype. 2 For example, see case 7612, Hutchison 3G UK/Telefónica UK. 3 See directive 2014/61/EU on measures to reduce the cost of deploying high-speed electronic communications networks, pp1–14. 4 See Cave M for a more flexible approach to be adopted towards (2014). The ladder of investment in Europe, in retrospect and prospect. Telecommunications Policy 38: 8-9. The objective of the enforcement which is reflected in fundamental framework is to provide new entrants with the opportunity to offer their services initially via the infrastructure of the existing competition law principles. There is a concern that operator. As a result, the revenue generated by new entrants should allow them to effectively ‘climb the ladder of investment’ and substantive changes in the analytical elements of so have the eventual ability to be able invest in their own network infrastructure. 5 See the Access to Infrastructure Regulation the framework will be vulnerable to ineffective provisions of Australia’s Competition and Consumer Act 2010, which subjects networks deemed to qualify as essential facilities to a implementation to the extent that existing specific access regime overseen by the country’s competition regulator, the ACCC. Recent considerations for the amendment of institutional shortcomings are not addressed. these provisions have concluded that an ACCC declaration designed to ensure network access to third parties should only occur when the grant of access would be in the public interest. 6 The conditions for a bottleneck are met when: (i) a facility is necessary, ie. if no second or third such facility exists (no substitute); and (ii) the facility cannot reasonably be duplicated as a way of CONCLUSIONS controlling the active provider, ie. no potential substitute. See pp7-8 of the Commission recommendation of 9 October 2014. The review of the EU regulatory framework for bit.ly/28PfqUw 7 The test considers dominance as only one possible cause of a significant impediment to effective competition, electronic communications which is to take place and thus ‘widens the net’ to catch a number of different situations. See Article 2(3) of Council Regulation (EC) No 139/2004 of later this year will need to address the policy 20 January 2004 and cases in note 2 above. 8 See directive 97/33/EC on interconnection in telecoms with regard to ensuring trade-offs discussed above. In doing so, it will be universal service and interoperability through application of the principles of open network provision. 9 See Alexiadis P (2015). Policy options for a revised EU access and interconnection regime. Digiworld Economic Journal 98 Q2 pp2-28. 10 See, for example, important to acknowledge that the very successful the relevant provisions within the Access Directive and directive 2014/25/EU on procurement by entities operating in the water, regulatory model introduced in 2002, while still energy, transport and postal services sectors. See also the position within France with regard to mandatory open deployment of analytically coherent today, requires a helping hand in-house wiring (one fibre line is deployed from the distribution point to each premises). 11 See Ofcom’s strategic review of 2004 if the future of a robust electronic communications and the view that functional separation of BT has secured substantial improvements in the UK’s fixed line sector, and the current sector in the EU is to be ensured. strategic review. 12 See case M.7217 Facebook/WhatsApp and case M.6281 Microsoft/Skype. See also the CERRE study, Market The discussion above suggests that the regulatory definition, market power and regulatory interaction in electronic communications markets, especially chapter 8, and WIK-Consult (2013). The regulation of voice over IP (VoIP) in Europe. p3. 13 The UK Competition and Markets Authority published a report, The framework that we should be implementing by the commercial use of consumer data, in June 2015, while the European Commission and Germany’s Federal Cartel Office have begun to year 2020 should at the very least be sensitive to consider the issue in the context of their investigations into both Google and Facebook. The French and German competition striking a balance between: authorities have also announced (at the end of 2015) reviews of the significance of big data. 14 Currently defined under Article 2(a) l The encouragement of network-based and 2(b) of the Framework Directive. 15 See regulation (EU) 2015/2120 laying down measures concerning open internet access and competition in urban areas, while ensuring an regulation (EU) 531/2012 on roaming. 16 For example, margin squeeze cases brought under Article 102 TFEU have adapted the use of access option in rural areas LRIC cost models as a common requirement of ‘cost’, while the TeliaSonera precedent (case C-52/09) clearly establishes the principle l The need to ensure open network architecture for that an ex-ante obligation to supply presupposes the need to supply an ex-post context. 17 Refer in particular to the language of Recitals 7 and 8 of the TSM regulation. By contrast, the Telecommunications Regulatory Authority of India (TRAI) took a restrictive future access against demands for more mandated position on zero-rating services on 8 February 2016, as have certain EU member states (Netherlands, Norway and Slovenia) prior to access options adoption of the TSM regulation. 18 Over the years, sector inquiries have been held in areas as varied as telecoms, such as the local l A minimisation of ex-ante asymmetric regulation, loop in 2004, leased lines in 2002 and in 2000 for roaming. 19 Alexiadis P (2012). Balancing the application of ex-post and ex-ante while being responsive to competition law disciplines under community law in electronic communications markets: Square pegs in round holes? In: Buttigieg E. Rights and ‘regulation’ through merger reviews and settlements remedies in a liberalised and competitive internal market. 20 Council Regulation 1/2003 on the implementation of the rules on l Flexibility to address emerging market failure competition laid down in Articles 81 and 82 of the Treaty. 21 See Article 9 (commitments) of Regulation 1/2003, pp1–25. 22 More details in: Alexiadis P (2015). Merger control in regulated sectors: A bridge too far? In: Ian S Forrester, A Scot without borders. Liber Amicorum problems from upstream or downstream elements vol II. 23 See Articles 4 and 7 of the Framework Directive, which are designed to ensure the accountability and independence of of the internet value chain national regulators. 24 Although Article 4(3) of the TFEU expresses that member states’ courts should take ‘the utmost account’ of the l Greater legitimacy and flexibility in decision- Commission’s opinions, acts, or other forms of ‘soft law’ instruments, there is no obligation on the courts to interpret those instruments making achieved through European Commission/ similarly or to achieve effective harmonisation along interpretational lines (also they may not be able to legally).

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OPENINGS FOR ZERO RATING Zero rating is a highly controversial aspect of the internet. AUGUSTO PRETA and PENG PENG provide a cost-benefit analysis amid the context of net neutrality

ero rating (toll-free data) is the practice of In the EU, on 30 June 2015, the European Union internet service providers (ISPs) and mobile reached an agreement on key elements for a single operators not charging end users for data market in telecoms, including net neutrality rules Z usage of specific internet content and that went into force on 30 April 2016. Until now applications of content providers through their there have been no clear rules on net neutrality at network. On one hand it may benefit consumers EU level, even though some member states have from using the subsidised services, on the other it adopted national laws on this issue, and zero rating could be considered anti-competitive and against has become a controversial issue. the net neutrality principle. This article focuses on Thanks to the mobile internet, the availability the cost-benefit analysis of zero rating. of mobile devices among consumers, and exponentially growing internet services, zero rating STATE OF PLAY schemes are becoming increasingly popular as Network neutrality has become a major issue as the mobile internet penetration rises. Zero rating allows internet is playing an increasingly fundamental role consumers to use specific internet content and in the global economy. To preserve the open services through the operators mobile network, internet, concerns have been expressed about the without deducting the data usage from data caps. risk that ISPs might exploit their control over the Half of mobile carriers around the world have network to inappropriately prioritise some content been providing zero-rating schemes (the only OECD over others. The FCC’s Open Internet Order and countries where operators have not been carrying other countries have enshrined net neutrality in any zero rating plans were Finland, Norway, Estonia, laws from 2010. Latvia, Lithuania, Malta, Chile, the UK and www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 23 COMPETITION

Japan).1 As of November 2014 there were at least internet, so zero rating has also been regarded as a 92 zero-rated services in the developed world; of threat to the open internet, particularly by small, those, 36 mobile phone operators were exempting innovative content providers. their own video services from usage caps and ten were doing so for their cloud storage offerings.2 PROS AND CONS OF ZERO RATING IN THE CONTEXT OF Zero-rating content covers a wide range of NET NEUTRALITY services: online government and community service The pros of zero rating are in economic efficiency, sites; popular services like Facebook, Google, Twitter and the benefits of zero-rating schemes are and Wikipedia; music and movie streaming services straightforward: consumers enjoy lower prices for (for example in the US, T-Mobile offers its data plan mobile internet. (Zero-rating opponents do say that subscribers zero-rated access to more than 25 online mobile operators would lower the price of mobile music services, including iHeartRadio, Pandora and data usage if zero rating is banned; we do not deny Spotify); an HBO app was provided by Vodafone in this possibility, but consumers could better avoid a the Netherlands before January 2015 (and the bill shock with zero-rated offers.) Given that certain operator was fined); in India several mobile data volumes of internet services and applications operators made Facebook and WhatsApp data use are not limited or metered against data caps, free to attract more college students; Facebook Zero, customers benefit from carefree pricing for Internet.org, Wikipedia Zero etc. are designed for offerings such as video streaming. developing countries. Furthermore, zero-rating provides incentives to The types of business arrangements between expand market size and penetration of mobile carrier and content provider are: broadband. Subsidising the consumer side may l Carrier initiated: with the purpose of attracting effectively increase the value of the platform as a customers to the mobile operator’s platform. whole in the network industries.4 Third-party applications such as YouTube, HBO Go, Regarding sponsored data, zero-rating deals Spotify and Facebook are the most popular. Besides benefit consumers with lower prices for mobile third-party apps, carriers may choose to zero-rate broadband. In the US, where zero rating is allowed, their own content or content produced by affiliated content providers pay for subscribers. This is a companies, such as until recently with mobile TV typical pricing strategy of cross-subsidisation in plans offered by Canadian carriers Bell Mobility and multi-sided platforms. Inducing a larger number of Vidéotron. consumers to use the services is socially efficient in l Sponsored data: generally content providers pay markets with large fixed costs and small variable mobile operators to finance the cost generated by costs. It applies to both content providers and the data usage of consumers (this is mainly the case mobile operators, which are characterised by the in the US). However, content-oriented applications significant investment (and risk) of innovation, and like Facebook Zero and Internet.org aim to promote the investment in infrastructure respectively. internet penetration in the developing countries. In addition, mobile operators can differentiate Zero rating in developing countries plays an their services with zero-rated content, which important role in extending the reach of the enhances competition among them.5 internet. Facebook Zero was launched in 2010, The cons of zero-rating in collaboration with 50 mobile operators in Net neutrality are, by and large, in the countries such as Bangladesh, Cameroon, advocates argue context of net neutrality. Indonesia, Kosovo, Myanmar, Pakistan and Obviously, zero-rating Zimbabwe. It allows customers of participating that zero rating deals are not neutral, and mobile carriers to access Facebook’s standard interferes with to some extent they allow mobile site content, send messages, and update mobile operators to their status on a zero-rated basis. unfettered choice. discriminate by content As Facebook and others do not pay ISPs for (in favour of some content providing the content, concerns have been raised. over others). Net neutrality advocates such as Indeed, in January 2015 a study found that Public Knowledge and Engine argue that zero-rating Facebook Zero shapes internet use in the developing schemes interfere with consumers’ unfettered world: 11% of Indonesian users of Facebook said that choice on the open internet and may ultimately they did not use the internet and 65% of Nigerians, discourage innovation by small players and/or 61% of Indonesians, and 58% of Indians agreed new entrants.6 with the statement that ‘Facebook is the internet’ Another net neutrality concern is associated with compared with 5% in the US.3 The fear is that a quality of service (QoS) issue: if some data traffic a few big internet companies are becoming is favoured by the mobile operators, are they increasingly important and may have a large impact throttling or blocking unfavoured data? Zero-rating on the economy. deals may disadvantage competing content More importantly, the practice of zero rating providers or services – zero rating falls into a certain internet services has been criticised as broader category of discrimination if mobile anti-competitive and a violation of open internet operators discriminate against other traffic, either principles, particularly as many new internet and by throttling (ie. degrading transmission quality) or content services target mobile markets. The further blocking it. Admittedly, this is a central issue under adoption of internet connectivity globally will rely the net neutrality debate. However, zero rating heavily on the consumer base of the mobile cannot be considered as against net neutrality

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principles: net neutrality prohibits ISPs from Network effects and competitive price discrimination discriminating by content “in favour of some The most significant motivation of zero-rating schemes is no doubt to content over the others” through network traffic expand the use of certain content providers, and in turn to increase management practices: “No blocking, no throttling, mobile wireless penetration. This may generate a variety of economic no paid prioritisation,” as the FCC’s Open Internet and social benefits,9 particularly among low-income populations and Order says. It is not zero-rated traffic compared with in developing countries. In developed countries, zero rating is mostly a the rest of traffic: it is only price differentiation at tool to push up demand for mobile internet. the retail level, not different treatment in terms of Both the markets of content providers and mobile operators exhibit traffic management. network effects, in that the value of the network to end users grows with the number of users. Historically, governments often subsidised EFFICIENCY JUSTIFICATION: A LEGAL AND participation in sectors with network effects to promote universal ECONOMIC ANALYSIS service for the telephone and, more recently, broadband. These kinds Clearly zero-rating is not neutral, but it allows of subsidies are generally considered beneficial for consumers. mobile users to enjoy some ‘carefree’ content, Promoting the network effect of increased adoption generates positive especially with data hungry services such as video social as well as economic externalities. In this context, zero-rating streaming. It is true that zero rating has been serves as a mechanism that helps to expand mobile wireless adoption. criticised as anti-competitive and against the net In the context of competition, mobile operators aim to add to the neutrality principle enshrined in law in several value of subscriptions to their mobile internet services by provided countries, especially if such offers involve the zero-rated content. Otherwise the chicken and egg problem may arise. mobile operators’ vertically integrated video and The most widely used internet content providers or applications, such cloud services. But we found economic arguments as Facebook and Spotify, are likely to partner with a large platform. that suggest zero-rating certain applications could Consumers choose the mobile operator that offers the most valuable, benefit consumers and enhance welfare. relevant content and the more users there are, the more consumer surplus is extracted from potential users. ‘Tying’ complementary services When the platform operator faces the challenge of establishing a Infrastructure and content are economic consumer base and providing valuable content or services at the same complements: mobile internet users derive utility time, subsidising one group of users is often observed, and zero rating only with a system consisting of both internet is no doubt an effective tool to attract subscribers and to compete connection, and content and services. In other against other mobile operators. words, content providers, for example over the top Both the markets where mobile operators and content providers (OTT) players, rely on the infrastructure of the operate are characterised by large, non-recoupable investments in R&D telecoms operators; on the other hand mobile and/or physical infrastructure; in contrast the marginal cost of serving operators establish higher value for their platforms additional users is trivial. Firms need users’ participation to recoup the by offering popular services. Besides carrying the fixed cost of the deployment of the infrastructure for mobile operators offerings of content providers, some operators also and R&D for content providers. In such industries, consumer and social offer their own services such as music streaming welfare increase when more consumers derive utility from services and cloud storage. Zero-rating offers can be considered as zero pricing on the tied product of certain content when consumers choose the tying product of mobile ANOTHER VIEW ON REGULATION internet. Bundling these two products by mobile In a recent paper, ‘Comparative case studies in implementing net operators may serve as an effective tool to neutrality: A critical analysis of zero rating’ (SCRIPTed April 2016) internalise the negative pricing effect generated Christopher Marsden examines countries that have implemented between the complementary services (known as net neutrality and pulls out thinking on zero rating. He suggests two Cournot complements).7 Pricing externalities arise if regulatory actions to encourage the correct use of zero rating: the prices of the complementary services are set l Treating zero rating as a short-term exception to net neutrality independently; prohibiting efficient tying will l Ensuring any such short-term exception is not exclusive, by lead to a loss in both the revenues of the firms subjecting such contracts to ‘fair, reasonable and non-discriminatory’ and in consumer welfare; furthermore, internet (FRAND) conditions. penetration is smaller than with a vertically These conditions are not dissimilar to the principles by which integrated pricing scheme. the Wikimedia Foundation permits Wikipedia Zero to be ofered by When the two tying products are not related, the mobile ISPs, he notes. In concluding, he says that while zero rating is tying practice is likely to be unlawful. Another highly controversial it is a relatively minor problem compared with element is when the tying product has a dominant so-called ‘specialised services’ (see also the article on net neutrality position which manifests an abuse. Prominent cases by Richard Feasey, Intermedia April 2016). were Microsoft tying its Windows Media Player and As Marsden also notes: “The majority of ‘mobile’ data trafc is Internet Explorer to Windows. The remedies actually downloaded to devices via WiFi in homes, ofces or hotspot imposed by the European Commission in these two locations. It is not the cost of mobile data plans that is the dominant cases were different: unbundling in the media price driver, but that of hardware and prevalence of WiFi.” player case, and a ‘must carry’ requirement to show Marsden does though fag up privacy as a “thorny issue” that users alternatives to using Internet Explorer. As long is largely unregulated in developing markets. “The wider issue of as mobile operators do not block the traffic of how users of ‘free’ apps such as Facebook are being monetised non-zero-rated content, zero rating does not induce by advertisers is associated with the net neutrality and zero-rated vertical foreclosure or raise interoperability debates, and in particular the correct policy responses,” he says. concerns as in the Internet Explorer case.8 Jana’s mCent service is a leading example of this type of application. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 25 COMPETITION

whose costs have mostly been made before Customers Cross-subsidisation in a multi-sided serving the additional user. As marginal users prefer the market is well explained by the purchase, even at a discounted price, it is welfare concept of the ‘waterbed effect’ in the enhancing. Therefore, bundling the two products certainty or analysis of mobile termination fees.16 – mobile broadband and online content – to push convenience of For an ISP allowed to charge content up demand can be efficient. providers for sponsored data, it is flat-rate pricing. expected that the subscription fees ‘All you can eat’ vs metering paid by end users will decrease, since Note that offering zero-rated content could be the ISP’s overall profits, from every source, are kept down to a normal perceived as an ‘all you can eat’ tariff for certain level by the competitive process; this result holds if it faces competitive content that directly benefits consumers. This is pressure, but it could extend also to ISPs with market power. The effect particularly meaningful for some data-hungry of a lower price on the end user side is because of the nature of the applications such as video streaming, whose data multi-sided market, where there are positive externalities among usage is more likely to generate bill shock, and content providers and end users. As a result, a charge for sponsored customers have to monitor it. But contrary to the data would be to the advantage of end users; on the other hand a harms emphasised by net neutrality proponents, suppressed price on one side may lead to a ‘pop up’ of the price on the offering zero-rating pricing would significantly help other side of the platform.17 mobile broadband users to avoid bill shock while enjoying the growing number of data-intensive Product differentiation services over the internet. Zero-rating schemes may act as an instrument by which mobile Some market studies on earlier online services operators differentiate themselves from competitors by offering access demonstrated that metering data usage could be a to customised content with their mobile wireless services. Product barrier to consumer participation in the mobile differentiation provides variety to consumers, and may also serve to internet.10 This is in line with the well-documented intensify competition in the mobile market. It enhances consumer phenomenon that consumers want to be insured welfare by providing better-fit tariffs for individual users instead of against fluctuations in their billing amounts under one-size-fits-all services.18 some circumstances. In general, consumers prefer Like pay TV operators that differentiate their services by spending to choose ‘all you can eat’ than metering even if massively to obtain premium content, mobile operators allow they end up paying more. This preference has been subscribers to access the most valued content or services even with a explained from various angles: mental accounting discounted price. Potential subscribers can make their choices among (ie. evaluating the economic outcome),11 self-control mobile operators by comparing which services are most suitable. of usage,12 and loss-aversion.13 Rather than distorting competition, zero rating could be considered as Not only may customers prefer the certainty or the result of competition among mobile operators, with the ‘outside convenience of flat-rate pricing, but they also tend option’ of no subscription. to avoid schemes where there is the possibility of In sum, the internet is dynamic and is undergoing dramatic feeling uncomfortable by linking every extra unit of increases in demand and changes in the nature of services provided. consumption to an increase in price.14 We consider zero rating an effective tool to encourage consumers’ This is meaningful particularly for data-hungry usage of the mobile internet by offering differentiated zero-rated applications – self-control of using the application is content; it benefits mobile operators in pushing up the penetration of likely to be fruitless. Therefore, zero rating these mobile internet, which also has a positive spillover effect on content applications is beneficial for consumers, and it providers, and may encourage further development of new content. helps to achieve higher use of streaming services. Admittedly, bundling and price discrimination are likely to be found anti-competitive if the undertaking has a dominant position. However Multi-sided platform competition this is not the case in the mobile network market, for example in the A multi-sided platform typically internalises the EU, where there are at least three operators in each of the 28 member externalities between agent groups and enhances states, and there is no incumbent. Market players are reacting by the value of the platform. Services like Facebook, reducing prices and introducing new retail services, notably by Twitter and Wikipedia attract consumers who are focusing on the development of mobile broadband, and the also content creators; thus, by encouraging competitiveness of the market is constantly monitored at both additional users to participate, zero rating increases national and European levels. both the number of consumers and the amount of Nevertheless, zero rating is reliant on the legislation of net neutrality. content available. This effect helps to explain why In net neutrality, the analysis should refocus on how the market works service providers like Facebook are also taking the and the net effect on consumers, rather than being narrowly concerned lead in promoting zero-rating programmes. with the role of ISPs or some popular content providers. As for the pricing structure of the multi-sided So where and why has zero rating been found unlawful? platform, a seminal paper demonstrated that there is no particular price structure bias under COUNTRIES AGAINST ZERO RATING monopoly provisioning in two-sided markets; with As the first country to enact a net neutrality law, Chile was also the specific assumptions such as linear demand, a first country that prohibited zero rating, which was alleged to generate monopoly pricing structure coincides with the anti-competitive effects: the competitors of Facebook and Google welfare-maximising pricing structure.15 A mobile would be severely disadvantaged as consumers would be tied to those operator could adopt a socially optimal pricing free services. Note that Chile did work with large content providers to structure by internalising cross-group externalities. promote zero-rating plans to increase internet penetration, but the Therefore, neither prices below cost nor very high regulator, Subtel, now stresses that zero rating is illegal under Chilean prices are indications of anti-competitive behaviour. net neutrality law.

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In January 2015, the Dutch ACM (Authority for Consumers and Markets) fined Vodafone for zero ZERO RATING: NET NEUTRALITY VIOLATIONS rating a third-party TV application from HBO. Zero-price schemes are considered illegal by the Country Carrier Content/app Theory of harm ACM because the deals between the mobile operator Chile (2014) N/A Wikipedia Zero, Competitors of and certain content providers favour some internet Facebook Zero, Facebook and Google traffic over others. This practice is prohibited even Google Free Zone severely disadvantaged if the zero-rating offers do not directly harm consumers. The Netherlands was the second Discrimination among country in the world to enact a net neutrality law, Netherlands Vodafone HBO internet trafc, even if (2015) no direct harm under which ISPs are not permitted to charge different access rates for specific online services. Slovenia Telekom Music streaming Vertically discriminating According to an ACM board member: “That is the (2015) Slovenije Deezer music streaming and idea behind net neutrality, and that is what we are Si.mobil cloud storage cloud storage services Hangar Mapa enforcing in these cases. ACM thus prevents consumers from having less freedom of choice Canada Bell Mobility Bell Mobile TV Vertically discriminating online.”19 (2015) Vidéotron illico.tv video streaming In January 2015, Slovenia’s national regulator, AKOS (Agency for Communication Networks and India Airtel WhatsApp Price discrimination (2015) Facebook among voice service Services), found that vertically discriminating (zero trafc (throttling not rating) music streaming by Telekom Slovenije and Source: ITMedia prohibited) cloud storage services by Si.mobil violated the net neutrality provisions stipulated in its electronic The ban on the zero rating providers in Chile and the fine given to communications act. The country was the second Vodafone in the Netherlands implies that the Chilean government in Europe to adopt net neutrality rules. The and the Dutch authority have taken a harsh line on zero-rating deals, communications industry fiercely opposed the while this issue is considered ambiguous by national authorities in adoption of the rules; in response to lobbying, the other countries. Among the current zero-rating cases, Chile, the second reading removed an explicit prohibition of Netherlands and Slovenia are countries that already have a law price discrimination. Although the decisions have enshrining net neutrality. Therefore, even if the regulators admitted been limited to zero-rated music streaming and that zero-rating of third-party applications involves only positive cloud storage services, it is logical that they could discrimination that does not directly harm consumers, discriminating apply to other zero-rated products (especially video among internet traffic and interfering with consumer choice are streaming) as well as to other operators. deemed unlawful. Similarly, the Canadian Radio-television and The cases in Slovenia and in Canada put an emphasis on vertically Telecommunications Commission (CRTC) issued a integrated music, video and cloud services in contrast to third-party decision in January 2015 against carriers Bell applications (although in Slovenia there was an investigation by the Mobility and Vidéotron, which were exempting Electronic Communications Council in 2014 that alleged that third- their own mobile TV services from their regular party zero-rated products such as HBO’s Go, Champions League data plans (for a small monthly fee of around $5) football video, and a popular music streaming service, Deezer, violated while counting traffic for rival services against the net neutrality law). The concern is that the monopoly mobile those data caps. This deal was essentially zero rating operator (for the end user) could favour its own services, which may in with a flat fee of the mobile operators’ own services. the extreme foreclose the market and severely disadvantage the rivals The CRTC has now banned carriers from zero rating of such internet services. their own services, but it remains open to the However, from an economics point of view, there is a well-established practice being applied to third-party applications. literature on industrial organisation that demonstrates that vertical Regulators in both Canada and the US have integration is often welfare enhancing and the antitrust laws already stopped short of outright bans on zero-rated articulated are a possible recourse for anti-competitive vertical services, but have signaled that such practices will integration. (Admittedly, vertical integration may reduce consumer be closely scrutinised. “Consumers will end up and total welfare particularly under two scenarios: raising rivals’ losing access to a service they really value, or pay marginal costs of operation or depriving rivals of economies of scale more for that service,” warned Bell’s chief necessary to reach minimum efficient scale.)22 Strategic tying by a regulatory officer, Mirko Bibic. “Consumers don’t monopolist is unprofitable without exclusionary effect.23 benefit when prices go up or when innovative So in summary, we can summarise the theory of harm claimed by services stop being offered.”20 The CRTC is currently national regulators and net neutrality proponents: consulting on differential pricing practices. Discrimination practice The Telecom Regulatory Authority of India (TRAI) l If the mobile operators offer zero-rating schemes which are either started an investigation against mobile operator Airtel, their own services or of third-party applications with charges, they which was offering lower rates for WhatsApp and may have an incentive to discriminate between zero-rated and non- Facebook than the standard rates, and planned to zero zero-rated services. rate some voice over IP services and other apps on the Disadvantage to small content providers Airtel Zero scheme. In February this year, TRAI issued l Small content providers that cannot afford to participate in a prohibition of discriminatory tariffs under net zero-rating schemes may have difficulty in obtaining users, if neutrality principles, which was a blow to Facebook’s substitutes are free. Free Basics, but currently is in a ‘pre-consultation’ l In the long-term it will discourage application or content providers phase in a deeper inquiry into net neutrality.21 from innovating and entering the market. www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 27 COMPETITION

Quality of service (QoS): hypothetically raised by Regarding zero rating, the regulatory position across countries can net neutrality proponents be summarised as follows: l Prioritising zero-rated traffic and/or l Zero rating is deemed as a net neutrality violation in some discriminatory degradation (throttling) of countries. A few countries have taken a hard line by banning it; it is non-zero-rated internet traffic. prohibited in Norway even though no net neutrality rules are enacted. l Mobile operators may enhance QoS only to l Not a violation but a case-by-case basis. In the US the FCC is taking selected content and applications, sometimes an approach consistent with the recently issued net neutrality rules: based on sponsorships or premium payments, if it zero rating by carriers of their own services, or of third-party increases their wholesale revenues. applications for a fee, will likely be found unlawful, whereas zero-rated On a zero-rating ban and broader net neutrality third-party services with no charges may remain acceptable. Canada provisions, the attitudes of national authorities in has a similar case-by-case approach. Europe and all over the world have been sharply l Zero rating is not prohibited. In countries without net neutrality divided. As we argue above, zero rating does not rules, the large internet firms (champions of net neutrality) can team involve traffic management and therefore should up with mobile network operators and offer zero-rated services to not fall under the scope of net neutrality. Moreover, subscribers. Interestingly, Netflix, the major net neutrality advocate, in the US and Canada, a case-by-case approach on announced zero-rating deals with ISPs in Australia, because competing zero rating has been adopted. streaming services have participated in zero-rating schemes. Based on the economic analysis, we do not find According to our analysis, zero rating could be an effective the arguments by the opponents of zero-rating mechanism that while not neutral, could have positive effects on convincing. Consider the facts – that most of the social welfare. It can help to increase mobile broadband penetration, currently observed zero-rating plans are ‘carrier and to achieve higher usage of certain internet services. Mobile initiated’, with the purpose of improving the value operators will have more content and applications to enrich the of their platform with no payments by content attractiveness of their platform; with a higher user base, content providers, and no foreclosure involved. Can a single providers have better incentives to invest in quality and in innovative mobile operator foreclose the market? services; consumers will ultimately have access to more engaging and Regarding sponsored data arrangements, there is competitive content with a comfortable pricing scheme. no evidence of exclusivity of the services. Even if a We do not find a rationale and empirical evidence for the necessity zero-rating programme involves exclusivity, it may of ex-ante regulation regarding zero-rating – the opposite to the be justified by efficiency motivations. Without application of net neutrality principles. Any distortion of competition foreclosure, exclusive dealing may be welfare- by the conduct of operators should be examined under the specific enhancing with larger participation. market scenario, and current competition laws applied. Given that the ‘Victims’ of zero rating are supposed to be the internet and communications industries are highly dynamic, it is small, innovative content providers. However, it is unlikely that a regulator could correctly identify the business models worth noting that mobile operators also have a and practices that maximise consumer welfare. Improper interventions strong incentive to maintain a diversity of content can delay the introduction of new technologies and result in significant providers as complementary to increasing the value harm to consumers. In our opinion, a case-by-case approach, through of their mobile broadband service. And, as argued ex-post intervention by competition authorities is more proper than in most competition cases, even if individual ex-ante prohibition in regulations. competitors have been disadvantaged, it does not necessarily demonstrate harm to competition. AUGUSTO PRETA is CEO of ITMedia Consulting and an IIC board member. The most important consideration for regulators PENG PENG is a PhD student at the University of Bologna. should be the net effect for consumers. Some See www.itmedia-consulting.com regulators and academics believe that a total ban on zero rating could force mobile operators to raise REFERENCES 1 Rewheel/Digital Fuel Monitor (2014). EU28 & OECD mobile internet access competitiveness report. bit.ly/29wFd3c 2 Rewheel/Digital Fuel Monitor (2014). Net neutrality is about the price of open internet access, more and more EU governments realize. data caps and they would be trying to offer as much bit.ly/29yTk9r 3 Quartz (2015). Millions of Facebook users have no idea they’re using the internet. bit.ly/1DbSWnK 4 See the seminal papers: capacity to users as possible; the net effect for Katz ML and Shapiro C (1992). Product introduction with network externalities. Journal of Industrial Economics 40 (1): 55-83; Fudenberg D consumers is positive where zero rating is absent. and Tirole J (2000). Pricing a network good to deter entry. Journal of Industrial Economics 48 (4): 373-390; Rysman M (2004). Competition But this argument is not wholly convincing, and the between networks: A study of the market for Yellow Pages. Review of Economic Studies 71 (2): 483-512. 5 For the effect of product normative implications are less clear. The market differentiation, see: Spence A (1976). Product differentiation and welfare. American Economic Review 66 (2): 407-414; Mankiw G and Whinston MD (1986). Free entry and social inefficiency. Rand Journal of Economics 17 (1) 48-58. 6 Eisenach JA (2015). The economics of zero outcome depends on the interactions among rating. NERA Economic Consulting. bit.ly/29yVW6W 7 Cournot A (1927 edition). Researches into the mathematical principles of the theory regulators, service providers and consumers, and of wealth. New York: Macmillan. 8 In Europe Microsoft is required by the European Commission to offer a version of Windows without whether banning zero rating would bring a positive Windows Media Player. Only 1,787 copies of this version have been shipped and anecdote suggests that they have been bought mostly by net effect for consumers seems not to be people wanting souvenirs of the anti-trust action. 9 See: Deloitte (2014). Value of connectivity: Economic and social benefits of expanding internet access. bit.ly/1UMaaxf 10 Dutton WH (2013). The Oxford Handbook of Internet Studies; Fritz F et al (2011). Empirical evaluation of fair straightforward. use flat rate strategies for mobile internet. Business & Information Systems Engineering 3: 269. 11 Thaler RH (1999). Mental accounting matters. Journal of Behavioral Decision Making 12 (3): 183-206. 12 DellaVigna S and Malmendier U (2004). Contract design and self-control: CONCLUSION Theory and evidence. Quarterly Journal of Economics 353-402. 13 Herweg F and Mierendorff K (2013). Uncertain demand, consumer loss Technology shapes economic institutions. The past aversion, and flat-rate tariffs. Journal of the European Economic Association 11 (2): 399-432. 14 Lambrecht A and Skiera B (2006). Paying too two decades have seen that traditional industries are much and being happy about it: Existence, causes and consequences of tariff-choice biases. Journal of Marketing Research 43 (2): 212-223. 15 Rochet JC and Tirole J (2003). Platform competition in two-sided markets. Journal of the European Economic Association 1 (40): 990-1029. facing severe challenges that are only becoming 16 Genakos C and Valletti T (2007). Testing the ‘Waterbed’ effect in mobile telephony. Journal of the European Economic Association 9 (6): more so thanks to the mobile internet. Not only 1114-1142. 17 Wright J (2002). Access pricing under competition: An application to cellular networks. Journal of Industrial Economics 50: economic institutions, but also political and social 289-316; Valletti T and Houpis G (2005). Mobile termination: What is the ‘right charge? Journal of Regulatory Economics 28: 235-58. institutions, must adapt to these new technological 18 See Sharp B and Dawes J (2001). What is differentiation and how does it work? Journal of Marketing Management 17: 739-59. 19 See Broadband TV News (2015). Vodafone fined for ‘free’ HBO channels. 28 January. bit.ly/29G1jTg 20 CBC News (2015). Why ‘zero rating’ conditions. A good regulatory regime may pave the is the new battleground in net neutrality debate. 7 April. bit.ly/29AJdQp 21 TRAI (2016). Pre-consultation paper on net neutrality. way for innovation and technologies, and is the key bit.ly/29GdZpO 22 See Salop S and Scheffman DT (1983). Raising rivals’ costs. American Economic Review 73 (2): 267-71. 23 Whinston MD to a successful economy. (1990). Tying, foreclosure, and exclusion. American Economic Review. 80 (4): 837-859.

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NEXT STEPS FOR AUDIOVISUAL REGULATION Highlights of the review of Europe’s Audiovisual Media Services Directive are explored by LORNA WOODS. Changes in how video-sharing platforms are judged could have major global implications for service providers

review of the European Audiovisual Media Above: the cast 1 The service consists of the storage of a large amount of Services Directive (AVMSD) had been expected of Marseille, programmes or user-generated videos, for which the for a while,1 and it is now one element of the a Netfix video-sharing platform does not have editorial responsibility. production A European Commission’s digital single market for the French 2 The organisation of the stored content is determined by strategy. Once again, we see the Commission market the provider of the service including by automatic means or proposing the rollout rather than the rollback of algorithms, in particular by hosting, displaying, tagging regulation in the face of sector change – and the and sequencing. following is an overview of some of the main issues. 3 The principal purpose of the service or a dissociable section thereof is devoted to providing programmes and MATERIAL SCOPE user-generated videos to the general public in order to The first change is an extension of material scope. inform, entertain or educate. The Commission explains2 that a ‘limited extension’ 4 The service is made available by electronic will occur as the new proposal applies to ‘video- communications networks within the meaning of point (a) sharing platforms’, such as YouTube. Video-sharing of Article 2 of Directive 2002/21/EC.” platform services are defined in new Article 1(aa) This definition makes clear the cumulative nature AVMSD (Art 1(1)(b) of the proposal): of the conditions that must be satisfied by a service “… a service, as defined by Articles 56 and 57 of the Treaty to fall within scope, but also clarifies that the on the Functioning of the European Union, which meets the organisational features of the video-sharing following requirements: platforms identified are illustrative, not an www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 29 MEDIA

exclusive list. It is also starting to engage with the issues surrounding editorial choice in an environment where ‘suggestions’ are made by programming – whether as a result of big data profiling or just paid prominence. Moreover, the proposal integrates the point that such platforms can be caught if a ‘dissociable segment’ satisfies the definition. PROGRAMME DEFINITION In addition to the proposed extension to some internet services, no doubt there will be much comment on the workability of the definition – not least where it draws the boundaries. Will there be difference in treatment between Instagram, Flickr and other photo-sharing sites, Twitter and Facebook (both of which have video capability, or link to videos) and YouTube, Vine and Vimeo – and are these sites similar to Dailymotion and Is a video platform “Programme means a set of moving images with or Maker.tv? For now, note the centrality of the such as Vimeo likely to without sound constituting an individual item within a concepts of ‘programme’, which gets a new be defned as carrying schedule or a catalogue established by a media service ‘programmes’? definition (in Article 1(1)(b) AVMSD, replaced by provider and the form and content of which are comparable Art 1(1)(c) proposal), and of ‘user-generated video’ to the form and content of television broadcasting. (added to the AVMSD as (1)(ba)). This latter definition Examples of programmes include feature-length films, covers material created by end users, but also sports events, situation comedies, documentaries, children’s material that such users may be re-using by programmes and original drama.” uploading. This means the (unlawful) uploading of The proposal removes the phrase “and the form professional material falls within the definition, but and content of which are comparable to the form also material whose creators are unknown. and content of television broadcasting”, suggesting The definition of programme does not relate to a move away from video-sharing platform services alone, but is a The definition of traditional television as central element in determining the scope of the the benchmark and AVMSD. So, Recital (‘Rec’) 3 specifies that the programme is a towards a more open AVMSD “should remain applicable only to those central element in and arguably broader services the principal purpose of which is the determining the conception of ‘an provision of programmes to inform, entertain or individual item’. educate”. The purposes here are so broad that they scope of the AVMSD. Rec 26 and 27 elaborate can exclude nothing; the determinative element is on the services caught therefore the ‘programme’. through ‘video-sharing platforms’ and raise The scope of this definition was the subject of particular issues. Rec 28 contains the implicit litigation in the context of a press site which acknowledgment that the proposal takes the contained short video clips in ‘New Media Online vs possibility of regulation beyond those with editorial Bundeskommunikationssenat’3 in which the responsibility (even that at a very blunt level of European Court of Justice ruled that videos under a choice – as in over the top, OTT, services). The subdomain of a newspaper website could fall under explanatory memorandum skirts this issue, the definition of a ‘programme’ within the AVMSD recognising that there will be a point of interplay (an approach from which UK regulator, Ofcom, has with Articles 14 and 15 of the E-Commerce Directive arguably differed in respect of its interpretation of (ECD).4 Those provisions provide immunity the UK implementing regulations). This position is from damages for hosts with no knowledge of reflected in Rec 3, which notes that standalone parts problematic content and prohibit the imposition of of newspaper sites can fall within the AVMSD as can monitoring requirements (see also Rec 30). channels within video-sharing platforms. Radio The proposal also recognises the need to include remains outside the AVMSD; it does not contain a those services from providers that are not moving picture element. Presumably Spotify and established within the EU but are part of a group so similar services are excluded too. as to ensure effectiveness of protection (Art 28b). In Under the current AVMSD: this context, we are reminded of the reasoning of

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the court in determining jurisdiction under the This applies to all AVMS providers. The current Data Protection Directive in the Google Spain case:5 broadcasting-only protection of minors provisions legal form was not determinative of this question, (Art 27 in the AVMSD), which currently act as but instead the business reality. Ofcom, in its triggers for the Art 3 procedure, will be deleted. response to the Commission’s consultation last year, While the AVMSD was a minimum harmonisation expressed concern about rules that would be directive, recognised by Art 4(1) in the AVMSD ‘disproportionate and impractical’. These provisions which allowed member need also to be understood in the context of One of the main states to impose higher ongoing trade negotiations with other countries, standards in respect of all such as the Transatlantic Trade and Investment concerns about fields coordinated by the Partnership (TTIP), which may affect their feasibility. video-sharing directive, the proposal is One of the main concerns about video-sharing platforms is hate now to limit the issues in platforms is hate speech, the understanding of respect of which member which – in relation to all regulated platforms – speech. states may impose stricter ‘should, to an appropriate extent’ be aligned to the rules to these Articles: framework decision 2008/913/JHA6 (concerning l 5 (information obligations) criminal expressions of racial hatred), specifically l 6 (hate speech) on the grounds on which hatred may be incited l 6a (development of minors) (Rec 8). In this, the draft parallels concerns in the l 9 (standards for commercial communications) Commission’s communication on online platforms.7 l 10 (sponsorship) What the requirement in the draft means in l 11 (product placement) practice, given the qualifiers used, as well as the l 12 (protection of minors technical measures) relationship with the ECD’s safe harbour provisions l 13 (on-demand quotas) in respect of video-sharing platforms, is uncertain l 16 (TV European quotas) – see Art 28a(5). l 17 (TV independent quotas) The new Art 6 in the AVMSD simply imposes on l 19-26 (advertising and teleshopping rules) member states the obligation to use ‘appropriate l 30 (NRA – national regulators) means’, the meaning of which is elaborated in l 30a (ERGA – European Regulators Group for Art 28a. This provision points to a balancing of Audiovisual Media Services). competing interests, which may allow for a certain In respect of the other provisions, it seems the degree of subjectivity and variation across member AVMSD provides maximum standards. It is notable states. Art 6a deals specifically with the protection that this latter category includes the provisions that of minors from a wider range of content likely to are specific to video-sharing platforms as well as impair physical, mental or moral development. long-standing provisions such as the news reporting This envisages the need to give information to provisions. viewers so that they may make appropriate choices There has been some ‘alignment’ of rules for of viewing, rather than the imposition of technical linear and video on demand (VOD) services measures. (eg. Art 12). This at an abstract level makes sense. Commentators suggest that the industry trend is for COUNTRY OF ORIGIN entertainment, television and similar companies to Another contentious issue has related to the focus on making and assembling content for country of origin (COO) principle, specifically where distribution across the multiplicity of digital providers engage in ‘forum shopping’ (ie. opting for platforms available, in ways appropriate to those favourable jurisdictions and then broadcasting back platforms but among which there may be overlap of to the original target country). This has always been form and content. Certainly, there is inter-platform problematic, with a body of jurisprudence on abuse competition. So these changes are aimed at of rights leading to specific exception provisions in ensuring the mythical ‘level playing field’. the AVMSD. The idea of COO, however, has always been popular with industry players as it avoids EUROPEAN QUOTA re-versioning costs and other costs associated with The provision that has caught some attention when separate markets. the proposal was leaked is imposition of a European Whatever the view on COO, the anti-abuse quota requirement on on-demand providers: at provisions in AVMSD were complex and the issue of least 20% of the catalogue has to be European, and establishment open to interpretation. The principle these works should be given prominence (Art 13(1)). of freedom of re-transmission is restated but the It replaces the current provision which, in the possibility of derogating is extended to all words of the Commission, “leaves room for testing audiovisual media services, not just broadcasting as different approaches” but which potentially is currently the case (see proposed Art 3(2) – note ‘unlevels’ the playing field. that differences in procedure between linear and Note that there is no ‘so far as practicable’ non-linear services apply). The grounds are those set phraseology in this obligation (by contrast with the out in Art 6, which contains an extended category long-standing obligation on broadcasters), although of grounds of hate speech prohibited, and new member states may waive obligations in relation Art 12 which contains the ‘pornography provision’: to small and micro enterprises (Art 13(5)). The transmission of relevant material is permitted, but obligation of ‘prominence’ is also not qualified in a way so that minors cannot access the material. (contrast the UK rules regarding ‘due www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 31 MEDIA

prominence’ of public sector broadcasting). independence; on the protection of minors in Presumably it is intended to address the point made a converged environment; and on material by the Society of Audiovisual Authors that currently jurisdiction as part of the preparation for the on Netflix “you have to look for European works (or review of the AVMSD. even national works) under the rubric ‘foreign Historically, the broadcasting and now the films’”8 – not necessarily the most enticing audiovisual sector has revealed deep divides branding. between member states and also between various The current TV quotas rules have not addressed sectors of industry. The Commission has no doubt the problem of scheduling undermining the attempted to produce a balance of interests after an effectiveness of the quotas, a point noted in the extensive review process. What will remain once the response to the Commission’s consultation. The Council and the European Parliament start to look definition of ‘European’ has been left unchanged at this, especially after what is likely to be intensive – as have the TV quotas. This proposal will no doubt lobbying, is anybody’s guess. please the EU film industry, though it is likely to be It may even be affected by the UK’s exit from the less popular with distributors, which are already European Union (Brexit); warning about strangling a still not mature All those that while the directive should industry.9 Against this background it is noteworthy be agreed before any UK that Netflix has produced a series in Europe broadcast to or exit, surely the UK’s (Marseille – perhaps to get a stronger foothold in across the EU will negotiating position the French language market) and is about to launch be bound by any would be weakened a second, as well as engaging with local between the ‘leave’ vote broadcasters (eg. Kiss Me First with the UK’s regulatory changes. and actual exit, shifting Channel 4; Suburra with Italy’s RAI). the balance between the free market and dirigiste member states. INDEPENDENT REGULATORS Although the main changes will be felt within The proposal also introduces a requirement for the European Economic Area (EEA), the proposals member states to set up legally distinct and will affect providers globally – non-EU states may functionally independent regulators, in many well have opinions on potential extraterritorial aspects following the recommendations of the effects. All those that currently broadcast to or Council of Europe (Rec (2000) 23).10 While the across the EU will be bound by any regulatory desirability of independent regulators is recognised changes, though they will continue to benefit from in most member states as a way of safeguarding country of origin and perhaps some loosening of freedom of expression while achieving other the advertising rules. societal and political goals, there is no such The overall direction will be no great surprise obligation in the current AVMSD framework. although some of the specific rules may be The need to introduce such a requirement may unwelcome. The big change could be the extension be a response to developments in some of the to video-sharing platforms, which may currently member states where there have been changes to not see themselves either as regulated in the EU, the regulatory architecture in respect of the nor indeed subject to ‘broadcast’ content rules. media with consequent concerns about media Given the current concerns about the link independence. It further specifies with a non- between hate speech and radicalisation, the exhaustive list the remit on such regulators: media Commission’s AVMSD proposal may be part of a pluralism, cultural diversity, consumer protection, more general trend away from a laissez-faire internal market and the promotion of fair environment against which it will be hard to argue. competition. These roles must be established in law Certainly, some of the big IT companies have already and carry with them enforcement powers. A right of signed up to a code of conduct12 guaranteeing that appeal for viewers/end-users must be provided. the majority of ‘illegal content’ (as defined in the Significantly, this requirement applies across all framework decision) is assessed and where AVMS providers, including video-sharing platforms. necessary removed within 24 hours. The proposal also formalises the European Regulators Group for Audiovisual Media Services LORNA WOODS is a professor of law at the University of (ERGA), which was established on the basis of a Essex, UK. This article is based on a blog posted at EU Law Commission decision in 201411 in response to a Analysis: bit.ly/290PAtL perceived need for greater senior level cooperation in European audiovisual policy developments. REFERENCES 1 European Commission (2016). Proposal for an updated Audiovisual Media Services Directive. bit.ly/1OW7h0c The response to the group has been mixed, some 2 European Commission (2016). Digital single market – Commission updates EU audiovisual rules and presents targeted approach questioning whether it adds anything to existing to online platforms. Fact sheet. bit.ly/1s8V12n 3 Court of Justice (2015). New Media Online vs Bundeskommunikationssenat and Der groups, such as the European Platform of Bundeskanzler. Case C-347/14. bit.ly/1LjZV2F 4 Directive 2000/31/EC (E-Commerce Directive). bit.ly/1xa4aFc 5 Court of Justice (2014). Google Spain vs Agencia Española de Protección de Datos (AEPD). Case C-131/12. bit.ly/1mpC190 6 Council framework decision 2008/913/ Regulatory Authorities (EPRA), which exists outside JHA on combating certain forms and expressions of racism and xenophobia by means of criminal law. Official Journal of the European the EU framework. Alternatively, given the proposed Union, 6 December 2008. bit.ly/1WVKSDA 7 European Commission (2016). Communication on online platforms and the digital single expansion of the AVMSD and the uncharted market opportunities and challenges for Europe. bit.ly/1OMKlLB 8 Society of Audiovisual Authors (2015). AVMS – Improving the territory awaiting the regulators, a mechanism promotion of European works online. bit.ly/29c1QcC 9 Computer & Communications Industry Association (2016). Europe offers details on regulatory plans for online services, digital single market. bit.ly/293yH4M 10 Council of Europe. Recommendation (2000) 23 for coordination may be important for the on the independence and functions of regulatory authorities for the broadcasting sector. bit.ly/291nAbD 11 European Commission functioning of the COO principle. ERGA has (2014). Commission decision on establishing the European Regulators Group for Audiovisual Services. bit.ly/29kWTgz 12 European already produced reports for the Commission on Commission (2016). Code of conduct on countering illegal hate speech online. bit.ly/1XLcJVo

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TAKING STOCK OF 5G The hype about the next generation of mobile technology is likely to gather pace in the next few years, but currently there is a lot of scepticism about whether it qualifies as an integrated, great leap in progress, as MARC BEISHON finds in this round-up

s 5G going to be the true next generation in as the book notes, there should be a shift to mobile/ mobile services, as 4G has undoubtably been, or is wireless enabling a ‘tipping point’ for a more there a lot more nuance and evolution rather holistic economy, as many industrial and consumer Ithan revolution involved? Certainly there are sectors both build their own connectivity and sceptics now expressing warnings about the hype, interact in the knowledge society. But as the authors and the way forward is, as always, likely to be note, projections for 2020 have been revised down guided by what investors are prepared to commit to – mobile traffic down from 1,000 times higher to in the cold light of day. And there are, to quote one 250; the number of communicating machines down analyst, a lot of ‘known unknowns’. But all are to 25 billion from 50 billion. These are still big agreed that 5G is not springing up in a vacuum, and numbers but it seems that as with the ongoing there is a wide landscape of issues which are now in disputes about spectrum needed for mobile, reality play and which are likely to shape reality as 5G is catching up with the hype. services go live, possibly in under two years, if South In the introduction, there is a good set of basic Korean operators are able to deliver on a promise to information, such as a diagram of the requirements have services running at the 2018 Winter Olympics. of what is termed IMT-2020 – that is, factors such as user data rate, latency, reliability, traffic capacity BROUGHT TO (A TECHNICAL) BOOK and connection density. It is noted that security is A new book, 5G Mobile and Wireless a key issue because mobile broadband will be Communications Technology,1 looks to have increasingly used for internet access and cloud achieved its aim of covering this landscape, if only services. Global initiatives are listed – they include by sheer size – its 400 pages go to town in particular 5G-PPP (public-private partnership), the EU’s on the technical parameters of mobile networks successor to METIS; China’s 5G promotion group; and spectrum, while also setting the scene with the Korea’s 5G forum; Japan’s ARIB 2020 and Beyond Ad current state of play and the concepts and ‘use Hoc. And standardisation efforts are briefly covered. cases’ for 5G. It comprises contributed chapters A chapter on use cases – 14 in all – follows and from experts, mostly from mobile operators, includes autonomous vehicles, smart cities, media equipment makers and academia, edited by a trio on-demand and smart energy grids. To cover these from Ericsson, Nokia Bell Labs and the Polytechnic there are essentially three generic 5G services – University of Valencia, and a good deal of the extreme mobile broadband (high data rate and low material comes from an EU project, Mobile and latency); massive machine-type communication (for wireless communication enablers for the 2020 the billions of devices); and ultra-reliable machine- information society (METIS), which concluded last type communication (this is for industrial cases year. There’s a lot of ‘skin in the game’ here – have where very reliable low latency links are needed, for they achieved a balanced account? example). There is a good table on the needs of the It’s a well-worked narrative now that 5G is needed use cases, such as what the values are for wireless to handle much higher data volumes, an explosion communications serving a high-speed train. The in machine to machine (M2M) communications, technical needs of these are also covered and point and associated factors such as low latency. Further, to much of the rest of the book – they come www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 33 SPECTRUM

under four categories, namely a dynamic radio “evolving and improving 4G will remain as the access network, lean system control plane, localised optimal solution for many locations and spectrum content and traffic flows, and a spectrum toolbox. bands”. Certainly 4G will remain dominant in We are not going to look in detail at these, and most sub-3 GHz bands, and many 5G features are only of the book, as things get highly technical: there are effective at higher frequencies. no fewer than ten pages of acronyms... One notable feature about 5G spectrum is that An accessible chapter on spectrum notes: “Future much more is expected to be allocated to it than regulation and technology development will have now exists for current mobile – some 10 to 20 GHz to navigate a complex landscape of spectrum – which means much wider channels that can availability... Multiple frequency bands, subject to deliver higher capacity different regulation, and including various forms of and speeds. A problem shared spectrum, are expected to be harnessed by It could be 2022 or with higher frequencies, wireless communication systems.” The problem is 2023 before there though, is that they do that “many desirable spectrum bands are between not propagate as well as 3 GHz and 100 GHz; however, these bands are in are large scale lower frequencies, so to regions of the spectrum that are assigned to other deployments of get usable range and services, such as radiolocation, fixed services penetration, techniques (point-to-point links), active and passive earth 5G services. such as ‘beamforming’ exploration, and satellite communication. The will be needed (and this is region from 3 GHz to 30 GHz is heavily used by of course well covered in the 5G book, as is another many of these services.” New strategies for spectrum technology, MIMO, or multiple-input multiple- sharing are likely to be needed, but “exclusive output, already used in 4G. Beamforming is also licensed spectrum is essential for the success of 5G” used now in 5 GHz WiFi and other systems). (and for ultra-reliable machine-type communication). Apart from questions about range, Entwistle This chapter adds: “The importance of spectrum notes that high-frequency signals are not good at valuation will be even more significant in 5G due to penetrating buildings, even with beamforming. much higher bandwidth demand. Furthermore, it This means that although indoor-to-indoor links will be very difficult to assess the value of spectrum with 5G will be good owing to a high level of for 5G because of a much broader range of frequency reflected (multipath) signals, limits on outdoor-to- bands to be exploited and more diverse ways of indoor links will be an important constraint, sharing and utilising spectrum to provide the although the relative performance in different expected quality of service and to secure investments.” materials such as concrete and brick is not known. And a third key unknown is timing – “It could UNKNOWNS OF 5G AND OTHER FACTORS be 2022 or 2023 before there are large scale A joint meeting by the IIC and the Australian deployments of well-functioning 5G services given Communications and Media Authority (ACMA) in the complexity involved and the many degrees of June saw a thorough briefing on 5G by Andrew freedom that are expected in the standards. The Entwistle of New Street Research on the ‘known timetable for 5G is far from clear at present.” unknowns’ of 5G, especially aimed at investors.2 One plausible deployment option is using 5G He confirmed that while 4G will likely completely (or pre-5G) to serve rooftop antennas for wireline displace 2G and 3G and is a true generational shift, substitution. “Verizon is exploring this model with 5G will coexist with 4G for a long time, and a view to 2017 deployment so the uncertainties

ROUNDING UP THE LATEST NEWS ANNOUNCEMENTS ON 5G

l Europe’s leading telecoms operators Oettinger, who says the Commission will l Analyst frm Ovum estimates that 5G have launched a 5G manifesto, in which produce a 5G action plan this autumn: services will be available in more than they say they will launch 5G services “What is at stake with 5G is nothing less 20 markets worldwide by the end of across Europe by 2020 provided a than Europe’s global competitiveness.” 2021, with services in all four major regulatory environment exists that puts l Meanwhile the US FCC has proposed world regions. However, the vast an increased emphasis on investment. rules that would open up almost 11 GHz majority of 5G subscriptions will be In particular, “We must highlight the of spectrum for fexible use wireless concentrated in the US, Japan, China, danger of restrictive net neutrality broadband – 3.85 GHz of licensed and South Korea, where major operators rules, in the context of 5G technologies, spectrum and 7 GHz of unlicensed have revealed aggressive timelines for business applications and beyond... spectrum. “If these rules are adopted, the launching 5G services. The main use [and] a withdrawal of ex-ante regulation US will be the frst country in the world case for 5G by 2021 will be enhanced when appropriate is consistent with to open high-band spectrum for 5G,” the mobile broadband services. greater investment incentives for all FCC says. Specifcally, the proposal will l The University of Oulu’s research unit, players, in fbre among other 5G ready create a new upper microwave fexible the Centre for Wireless Communications, infrastructures”. See bit.ly/29pk2QD use service in the 28 GHz, 37 GHz, and in Finland, will develop 5G technologies l The manifesto has been welcomed 39 GHz bands, and an unlicensed band for the 2018 Winter Olympics in by the European Commission’s Günther at 64-71 GHz. Pyeongchang, South Korea.

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about its range, capacity and economics could be “We do not expect the current cellular business clarified in the near future,” reckons Entwistle, who model to survive into the 5G era,” comments remains sceptical for the time being. But the Entwistle, and this holds true even if 5G turns out prospects for 5G to substitute for wired broadband to be a damp squib. “We expect that 5G spectrum without rooftop antennas look very weak because of will be made available even where there is limited the building penetration issue. enthusiasm from operators, so the ‘spectrum barrier The potential market for 5G for delivering the to entry’ will be lowered. Wireline operators, end internet to the rooftop, as an alternative to wired users and others will add 5G connectivity in their networks, does seem to be interesting given the homes, offices and public spaces. Device makers potential savings in street infrastructure. But as will include 5G in the leading smartphones and Entwistle points out: “The technical ingredients tablets. These developments will not be stopped by for wireless point-to-point services already exist. disappointing link performance, operator reluctance There’s been no need to wait for 5G. Our view is or a lack of real demand for gigabit speeds.” that any large wireless operator could have gone ahead with a rooftop broadband offer in a high SPECTRUM PIPELINE spectrum band at any point in the past five years In notes about spectrum, he adds: “Our view is that (and probably longer). Whatever factors have the development of 5G services will be shaped by the prevented wireless operators from offering point-to- mix of bands that are most readily available for 5G point services as a substitute to wired broadband are use. However we do not probably still there in a 5G world.” see any particular Nevertheless there is activity on this front – We do not expect shortage of 5G spectrum Entwistle adds that Verizon’s possible ‘pre-5G’ the current cellular in the pipeline, and we point-to-point home broadband services “would be business model to expect spectrum a much more serious entry into the US home authorities to be energetic broadband market than its HomeFusion 4G fixed survive into the in bringing new bands wireless proposition launched in 2012”. Technically 5G era. into use, under pressure a point-to-point service is much easier to deliver from governments that than a mobile one as the beam does not have to see 5G as hugely track a moving end user or deal with rapidly important in industrial policy terms.” Issues changing link characteristics. affecting the spectrum ‘pipeline’ include: A rooftop proposition is complicated by factors l Exclusive licences or shared access – higher bands such as whether a specific property can be serviced are well suited to shared access, particularly with by a provider, challenges in installing antennas, and ‘cognitive’ radios that are ‘aware’ of potential competition from wired services whose prices are conflicts with other users now too low for a wireless substitution case to work. l Power limits – regulators have to decide which bands have which power limits. But traditionally BUT 5G WILL BE DISRUPTIVE expressed power limits on licensees aren’t well So where does 5G have a place? Serving many users matched to beamforming technologies such as 5G at gigabit speeds outdoors and indoors, certainly, l Directionality – 5G services are likely to be highly and it will give a major boost to fixed broadband asymmetric, with far more traffic from the network services in areas with inadequate wired to the user than from the user to the network. infrastructure. “Even if ‘rooftop 5G’ does not appear Market forces are likely to be the main driver of as a competitive substitute to wired broadband, we international progress with spectrum allocations do expect that it will be very useful for any area for 5G, rather than the formal processes of the ITU, without good wired infrastructure – remote and a view supported by the lack of consensus on many rural areas and also suburban and urban areas in 5G spectrum issues at the recent WRC-15 event. many emerging markets,” says Entwistle. “We would “FCC chairman Tom Wheeler encapsulated the expect 5G fixed broadband to be very competitive aggressive ‘realpolitik’ approach we expect to see with satellite broadband services for sites that are on 5G spectrum in a recent speech at a satellite within a few kilometres of a cell tower.” industry event,” says Entwistle. “After directly And it will disrupt the traditional cellular model criticising satellite industry resistance to in at least three ways: adjustments to 28 GHz authorisations (‘Such l Spectrum – huge quantities of high-frequency intransigence was frustrating’) he spelt out a tough spectrum, spatial reuse of spectrum and new line: ‘I offer a bit of hard-earned experience: it is far models for authorisation are likely to be disruptive more practical to get on the train than to be run l Densification– wireless-only operators are already over by it.’” Entwistle expects to see this appetite for disadvantaged in small cell and WiFi deployment progress in 5G spectrum at national level in many compared with integrated wireline players; 5G has countries and regions, irrespective of formal the potential to accentuate this disadvantage if (as international spectrum management. expected) it works best with smaller cell sizes l Data bundles: paid vs free usage – wireless INTERNET OF THINGS AND 5G operators already struggle with the mix of paid Entwistle raised some eyebrows when he put 5G cellular services and free WiFi usage. 5G makes this applications in the internet of things (IoT) to one problem much worse, and could push most side. “IoT and its related themes receive the majority operators to offer unlimited usage bundles. of attention in most industry and press coverage www.iicom.org July 2016 Vol 44 Issue 2 | InterMEDIA 35 SPECTRUM

of what 5G will become. However, in our view, ADVICE FOR REGULATORS telecoms investors should ignore the noise on this In advice for regulators, Webb says: “There are front because it is unlikely to translate into much broadly two roles for regulators – management of value for operators and distracts attention from radio spectrum and the rules that govern some of the more fundamental questions competition. Regulators should not focus on 5G concerning 5G.” spectrum, but should ensure that spectrum is As he points out, progress in sectors such as available for each component. This involves automotive, energy and healthcare is only loosely delivering more spectrum for 4G solutions in bands related to ‘5G’ in the sense of 5G as a set of future such as 3.5 GHz and 700 MHz, delivering spectrum telecoms standards. There is a good set of IoT for IoT including enhanced unlicensed spectrum, communications solutions that are nothing to do and ensuring WiFi spectrum remains usable by with 5G, including low power protocols such as controlling interference and helping optimise WiFi LoRa, Sigfox and Weightless, and a range of 2G, 3G deployments in dense areas.” For less certain and 4G implementations tailored to IoT applications such as millimetre wave it may be requirements. It is highly improbable that the 5G more sensible to enable sharing solutions until standards formation process will unify or simplify there is a business case for band clearance. the existing plethora of IoT technologies. “At best 5G Regarding competition, regulators should have will form an umbrella for this diversity, with all new models for operators to include companies that progress being labelled as ‘5G’ irrespective of the aggregate WiFi capacity, deliver IoT solutions, actual technologies in use,” says Entwistle. provide small-cell systems, and likely other IoT will of course be important for various sectors approaches. “Mobile and has many regulatory aspects but putting it into This implies operators will need to the mainstream telecoms value chain and also into adapt, possibly merge, the primary disruption caused by 5G are not so loosening and change network and important. “IoT and vertical market solutions are competition spectrum sharing models, interesting for equipment vendors, systems with the definitions of integrators, vertical market participant firms and regulation now to fixed or mobile becoming end users, but much less so for network operators. spur innovation. blurred. This implies Traffic volumes and revenue yields tend to be low loosening competition and margins tend to be thin. IoT and vertical market regulation now to send solutions are not areas where telecoms operators signals to spur business innovation.” have excelled to date and we see little evidence that Webb also has advice for governments – they this will change,” comments Entwistle. “typically want to encourage local industry to gain from selling new technologies, and ensure the early 5G VISION IN PERSPECTIVE deployment of new wireless solutions to provide Another view that the business case for 5G does not best-in-class services to their population”. But it match its apparent technical promise comes from would not be best to aim for a ‘leadership’ position in William Webb, CEO of Weightless SIG, an IoT 5G, he adds. “Rather than deploy 5G research centres, standards group.3 The technical logic that could serve it is best to focus on elements such as leadership in apparently perfect connectivity is reasonably strong: connected cars, in IoT or in WiFi management. These “It recognises that different radio interfaces will be do not require research activities but can benefit needed for different solutions such as broadband from directed government spending.” versus IoT. It builds on evolutions taking place within He gives the example of procuring a national IoT WiFi, IoT and vehicular communications. Finally, the system like the smart energy meters underway in implications of very low latency drive inexorably to some countries, which “would spur local industry millimetre wave deployments with their highly to deploy IoT solutions and develop applications directive antennas and small cell sizes.” and services that could subsequently be exported”. The problem, he says, is that there is no consumer Meanwhile at international level, he notes that the money to pay for new services, and recent attempts European Commission is keen to promote to improve ARPUs with services such as picture leadership in 5G but through large scale research messaging have not been fruitful, and much of the funding. This is rarely effective, reckons Webb, as it benefit has been captured by over the top (OTT) is an approach followed for many years with the players such as Skype. Meanwhile IoT apps can Framework and now the Horizon funding already be served with existing systems. But with no programmes, “but has not delivered a vibrant and successful European manufacturing industry, new revenue, will 5G cut operators’ costs, as 4G has? REFERENCES It seems not – “5G does not have any new air 1 Osseiran A, Monserrat JF, rather the converse”. Instead, the Commission interface compared to 4G, nor does it promise much Marsch P (2016). should seek to harmonise national strategies, “for in the way of increased efficiency.” 5G Mobile and Wireless example by encouraging a similar approach to IoT Further integration between networks – cellular Communications Technology. deployment across member states that would and WiFi being the main ones – does not need a 5G Cambridge University Press. deliver economies of scale and make Europe of 2 Entwistle A (2016). standard, and millimetre wave cells are only useful greater interest to global players. Fostering and 5G: Known unknowns. in dense urban areas, but it is indoors where bit.ly/29Ca9Ag funding standards bodies and forums is more greater capacity is needed (and where WiFi rules). 3 Webb W (2016). appropriate than research entities.” Essentially, current developments may just be What’s wrong with the 5G badged 5G but are happening anyway. vision? bit.ly/29zaSB0 MARC BEISHON is editor of Intermedia.

36 InterMEDIA | July 2016 Vol 44 Issue 2 www.iicom.org FIVE REASONS To join the IIC

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The IIC publishes Intermedia to provide a forum for a wide range of people and views. Intermedia does not necessarily reflect the opinions of IIC officers, trustees and members. Credit quotations as source: Intermedia, Journal of the International Institute of Communications © 2016 ISSN 0309 11 8X Printed in England by Charlesworth Press, Flanshaw Way, Flanshaw Lane, Wakefield WF2 9LP Annual subscription £175 Online: www.iicom.org International Institute of Communications Highlands House 165 The Broadway, London SW19 1NE Tel +44 (0)20 8544 8076 | Fax +44 (0)20 8544 8077