Adapting the European Union Telecommunications Regulatory Framework to the
developing integrated services environment - dealing with assymetric
regulation between telecoms and cable TV operators

Richard A. Cawley

The author is a permanent official of the European Commission and is
currently on leave as Fulbright Fellow at the Murrow Center, Tufts
University.
Contact details :
Edward R.Murrow Center
Tufts University
160 Packard Avenue
Medford, MA 02155
tel. 617.628.5000 ext 5637
email : rcawley@murrow.tufts.edu

In adopting the final piece of its 1998 telecommunications legislative
programme early in 1996,
liberalising local and long distance, wired and wireless communications,
the Europe Union
momentarily caught up and leap-frogged the USA (in regulatory terms that
is). The US has
now stepped ahead again by abolishing the lines of business restriction in
the consent decree
and at the same time by allowing cable television and telecommunications
companies to enter each
other's turf. So far, Europe has only gone half way on this one in the 1998
plan by lifting
restrictions on cable TV operators supplying telecommunications services.
Meanwhile in the
US, the FCC and the State utility regulators have more than a full work
programme putting in
place the many practical and regulatory safeguards that are now required by
the new legislation.
This paper examines the likely route that Europe will take in the
'telecoms-into-TV delivery'
area over the next two years. The question in principle comes down to
whether there will be a
systematic European framework which sets out the conditions under which
telecommunications
operators can carry and provide broadcasting services on their networks .
However, the
question is complicated by a number of aspects including what constitutes
broadcasting, (or
what constitutes telecommunications services for that matter) and,
particularly in the European
context, the inherently different national commercial and regulatory
situations. The paper
argues that the main pointers to what Europe will and can do are already to
be found in
regulatory principles embodied in current legislation and competition
caselaw and in the Treaty.
Assymetric regulation between telecoms and cable TV networks has already
arisen as a very
practical policy issue in the UK The specific assymetry arose because
following the duopoly
review in 1991, the UK allowed other operators to enter the
telecommunications sector and in
order to encourage local competition, permitted local cable TV entities to
supply both broadcast
television and telecommunications on their franchised networks. Meanwhile
BT was prevented
from offering broadcast services over its own telecommunications network
for a given period.
In anticipation of the impact that broader-band communications makes on
competition, the UK
Office of Telecommunications (Oftel) has already launched a broad
consultation exercise
concerning regulation in a world beyond the PC, the television and the
telephone. The UK
authorities are also due to re-examine the current regulatory assymetry
prior to 1998.
In fact the UK assymetry is not entirely unique in the European context. By
permitting cable
TV operators to provide telecommunications services in its recent
legislation, the European
Union has left open the question of telephone companies being allowed to
provide broadcasting
services. The most recent amending Article 90 Directive setting out the
regulatory rules for full
telecommunications competition interestingly includes a review clause
whereby the
Commission in 1998 will examine the question of telecommunications
operators being
permitted to deliver cable television services.
At the same time, cable TV penetration and the regulatory administration
varies widely in
Europe. Many European Union countries have very well developed cable TV
networks, others
have no cable TV networks at all, so that the particular assymetric
approach designed to give
developing cable TV networks a "head-start" on the incumbent telecoms
operator, as in the
UK, appears to be less relevant. However, in some European countries (e.g.
Germany,
Ireland, Denmark) the cable TV networks are owned and/or operated by the
incumbent
telecoms operator. In addition, it is always conceivable that a telecom
operator could buy or
attempt to buy its respective cable TV operator or indeed any franchise
that was made available.
This last case is particularly pertinent for Spain and Italy. If broadened
to include fair
competition or possible foreclosure of fair competition in local
communications networks, the
question of assymetric regulation can be seen to potentially apply right
across the European
Union.
In fact the Commission has already dealt with aspects of the issue in a
competition policy or
more specifically a merger regulation context. Two major cases were
considered in 1994 and
1995, the Media Services Group (MSG) case in Germany, involving Deutsche
Telekom,
Bertelsmann and Kirch, and the Nordic Satellite case. Both cases involved
joint ventures
between telecommunications operators and companies providing media content
and television.
The two cases were blocked by the Commission on the grounds that the
agreements would
allow an unacceptable degree of control over gateway facilities and make it
extremely difficult
for competing suppliers of new interactive content and media services to
reach potential
customers. The Commission effectively ruled that in the absence of
sufficient infrastructure or
network competition, the activities or joint activities of the incumbent
telecoms operators
should be controlled.
To answer the question about what Europe will do about the so-called
assymetric regulation
issue, the paper examines a number of broad policy options which will be
open to the
European Commission. It examines in particular what the likely Commission
action will be
bearing in mind the principles that are already inherent in Union
legislation covering both
telecommunications and broadcasting (including the definitions of these two
activities) and also
in the substantial case law which has been established in the two sectors.
The paper argues that progress in developing advanced information networks
depends crucially
on competiton, choice and innovation at a local infrastructure level as
well as across the
industry generally. The question of assymetric regulation comes down
essentially to two key
questions : (a) whether the joint provision of cable and telecoms networks
by a dominant
operator reinforces its dominant position and thereby hinders or delays
local competition and
(b) whether restrictions on the use of telecoms networks for the provision
of cable tv services
artificially hold back innovation in local delivery networks and service
provision by the
incumbent.
The Commission could use its powers either to set out a systematic approach
to assymetric
regulation or to tackle the issue on a country by country approach. In
addition to examining the
broad policy options open to the Commission, the paper also attempts to
develop a number of
benchmark tests that could be used in particular in evaluating question (a)
above.