001-037 6/11/06 20:03 Page 1 Technology Markets Regulation Public policy communications the next decade A collection of essays prepared for the UK Office of Communications Edited by Ed Richards, Robin Foster, Tom Kiedrowski 001-037 6/11/06 20:03 Page 2 November 2006 ISBN: 1–905774–08–7 978–1–905774–08–1 Published by Ofcom ©Ofcom 2006 001-037 6/11/06 20:03 Page 3 Foreword Viviane Reding Member of the European Commission, responsible for Information Society and Media For many years, experts from all over the competition law and technology neutrality. world talked about the digital convergence of It takes account of the convergence of tele- communication networks, media content and communications, data transmission and devices. Today, we see that technological broadcasting services, by dealing with all convergence actually happening. communications networks and services (fixed, mobile, satellite, broadcasting and so forth) Traditionally separate markets – such as in a consistent way. The relevant Directives are telephony, internet and television – are a balanced and well-considered attempt to changing fast and converging while market provide a coherent framework for the delivery players quickly have to adjust their strategies of different services which traditionally have to this new reality. This is, for example, why been subject to different regulatory regimes. telecoms and cable operators are moving into However, it needs attention in a number of each other’s markets. areas to remain effective for the coming decade. The European Commission’s initiative i2010: Regulation fit for the future European Information Society 2010 is a comprehensive strategy for modernising EU In June 2006, the Commission launched a Foreword policy and deploying regulatory instruments public consultation on the review of the rules to encourage the development of the digital that govern electronic communications. The economy. As the European Commissioner revised framework could enter into force 3 responsible for Information Society and around 2009-2010. Media, it is my task to ensure that an Therefore, the timing of this book seems to appropriate framework for the digital be just right, providing food for thought for economy and for investment in ICT is in possible improvements to the regulatory place. In practice, this means two things: processes and contributing to the policy creating an open and competitive single debate. The forward-looking focus – which market for information society and media includes trends and challenges for the ICT services within the EU, and creating the right sector going beyond 2010 – fits well with that regulatory environment for business and of the Commission’s review, which aims at citizens. This is essential for delivering ensuring that the framework remains valid sustained growth and skilled jobs in Europe. for that timeframe also. So many changes Today’s regulatory framework for electronic in technology, markets and consumer communications builds on principles of expectations will have occurred by then – a 001-037 6/11/06 20:03 Page 4 century of the ICT industry! – that there will structure that has characterised telecoms be a need for comprehensive reflection on incumbents since their creation. The price of possible evolutions and scenarios from a voice calls is likely to decrease towards zero, diverse set of authors. as is already the case for some PC-to-PC calls. Globalisation raises challenges and new Against this background, policy makers, opportunities to all economies, whether for regulators, legislators and market players can no industrialised or developing countries. The longer confine themselves to narrow and sector- revamped Lisbon strategy aims to make the specific approaches. Convergence requires new European economy more flexible so that it is ways of coping with this reality. The EU regu- better prepared for such challenges. latory framework of 2002 already responds to such challenges by relying on two main: On the one hand, technology has contributed technological neutrality and a market–based to globalisation par excellence by shortening approach to economic regulation. distances and reducing the cost-of-use of most information society services. On the other, Regulation that is based on specific technology, we should be aware of the positive impact of or which is unrelated to market dynamics, is technologies, products and services developed destined to become quickly outdated. In by the ICT industry for the rest of the econ- contrast, the principle of technological neutrality omy. These technologies have largely con- delivers coherent regulation of all the services tributed to the growth of productivity of the provided over such networks whatever the European economy. communication network used for its delivery. Regulation aimed at promoting a specific sector, Technology has especially changed some key company or technology can introduce significant parameters of the e-communication industry. distortion in the markets, leading to inefficient Digital convergence has brought together the investment by market players and an uneven Foreword world of audio, video, data and voice commu- playing field for those players. nications, changing forever the distinction between the different types of services. Borders This will only dampen the interest of 4 have become increasingly artificial and, thanks innovators and entrepreneurs to invest in to the internet, certain services are accessible Europe. Technological neutrality and a market- from any place in the world. based approach to regulation mean that we devote the right resources to the objectives of The next generation of upgraded networks regulation (promotion of innovation, (the so-called NGNs) are likely to be based on fostering competition and protecting the IP protocol, leaving the historic differences consumers) while making Europe an attractive between different network infrastructures far place for investment and innovation. behind. We may find that this ultimately has significant effects on business models: in But what does a good particular, that the services consumers receive regulator look like? over communications networks will be offered Regulation requires regulators. From an separately from the connection to the institutional point of view, the question is network. This is likely to have a significant whether a ‘converged’ regulator is the most impact on the traditional vertically-integrated 001-037 6/11/06 20:03 Page 5 suitable model for dealing with future Here, Europe has great potential as regards challenges? Member States have followed the development of innovative services (e.g. different approaches: in some, (e.g. Italy and mobile TV) and the provision of diverse Finland) the same regulator is responsible for offerings of content, including content regulating both content and transmission production. The global marketplace of the services. In the UK, Ofcom is the independent internet creates new economics which allow regulator and competition authority for the content producers to address even very communications industries, with responsibilities specialised niche demands. This means new across television, radio, telecommunications offers and choice for consumers – wherever and wireless communications services. they are in the world – as long as these products are accessible. Current proposals in Under existing European law, the scope of the area of spectrum are aimed at facilitating activity of national regulators is part of the the development of innovative products and institutional autonomy of Member States; it is wireless services. not dealt with by Community policy. Moreover, regulation of infrastructure (i.e. the EU Competition: the catalyst regulatory framework for e-communications Effective competition in the markets benefits networks and services) is separate from the consumers in terms of increased choice and regulation of broadcasting content (i.e. the TV lower prices. The framework provides a basis Without Frontiers Directive) as they respond to both to control the exercise of significant different policy objectives. These frameworks market power and the means to allow national will continue to remain separate in the near regulators to take steps to allow self-sustaining future, though the two sets of rules will have to competition to emerge. As markets become be consistent as digitalisation and technological effectively competitive, the framework provides progress go on. that sector-specific regulation will be removed. One point I often stress – and bear this in Thereafter, competitive markets will be subject Foreword mind when we design and implement policies only to competition law and consumer – is that technology is not about a better protection regulation. As market dynamics are ‘lifestyle’; rather, it is about a better life for difficult to predict (notably in the long-term), 5 everyone through better services for the EU model of regulation based on market consumers and citizens and new opportunities analysis is more sustainable than pre-fixing a for growth and jobs. This is the thinking that date for the phasing out of ex ante regulation. has guided the i2010 initiative for a European One question is often asked: to what extent information society. does the framework incite or inhibit strong For consumers, convergence means the and sustainable competition and investment? possibility of accessing the same services and Undoubtedly, investments can flourish in a content (email, music, television) using variety