UK: The Next Net

Last Updated: 1 November 1999

As we all know, at the moment the Internet is a global 'network of networks' based on the TCP/IP protocol. Quite apart from the fact that this protocol's days are numbered, one can envisage the time soon when the Internet has evolved to become 'The Network', the global infrastructure or grid upon which all the world's communications of whatever type are transported. For as manufacturers, operators and users strive for increased inter-operability, all roads seem to lead to the unification of today's networks into a 'super Internet' supporting all manner of different transport technologies. This spells a number of far-reaching consequences for communications law and regulation.

The Net is a 'free spirit'

Unlike the more traditional telecommunication networks, the Net, which of course owes its origins to the academic environment, is the preferred medium for text-based communications, conveyed by Net carriers, Internet Service Providers, who have not lived in the realms of regulation and have established inter-operator relationships based on mutual support. On the other hand the telco model (which has emerged from highly regulated world of state control and ITU supervision of international communications) has been accustomed both to the threat and the support of regulatory intervention in order to enforce access to markets, networks and services.

It seems that just as there is convergence in the industry equally there must be convergence of regulatory approach to support the new model. Deregulatory moves generally are likely to push the telecommunications environment towards the Net 'free spirit' model, but the Net can also benefit from some of the more basic regulatory principles applied to telecommunications and which deserve to have a sustained existence. This can be characterised as part of the Net 'growing up', so as to adopt a more commercially mature approach to issues such as access and pricing.

Future regulation should be technology- and platform-neutral

This principle appears to be completely ingrained in current regulatory philosophy and indeed has been expressly endorsed in the European Commission's various papers on convergence. This would be all the more comforting if it was uniformly practised in the regulatory schemes that are gradually being adopted around the globe, but rule makers seem unable to throw off their own instinctive tendency to regulate for the sake of it. Nevertheless as long as we keep talking in these terms perhaps hope will be turned into reality.

Convergence is likely to throw up the biggest test yet of a technology-neutral regulatory environment. With its content 'channels', web-casting, video streaming and other programme-like formats, the world wide web is, through the Net, becoming a kind of personalised broadcast medium. Similarly, third generation mobile systems will bring along true audio visual content accessible through mobile terminals, making telecommunications operators quasi-broadcasters in their own right. Those countries who thus distinguish one delivery system from another in the way in which they are regulated will need to revise their rules to be independent of whether content is delivered through terrestrial, satellite or other wireless systems.

This of course is an argument for consistent and harmonised regulation, rather than for no regulation at all. There remain a number of competitive tensions for the foreseeable future which will continue to attract regulation, discussed below.

Access will be key to convergence and competition.

The European Commission's paper cited above on the results of the responses to its Green Paper on convergence recognised that for the foreseeable future there would continue to be a limited number of routes to individual users, namely fixed telephone lines, wireless, mobile and/or satellite communication links, terrestrial broadcasting and/or cable TV infrastructure.

Consumers are, however, unlikely to have more than one or two of those links in their home for the time being. This leads inevitably to a concern about bottlenecks and to calls for regulation of open access (e.g. local loop unbundling) at the telecommunications network level.

Access to physical telecommunication facilities and to distribution channels will particularly be a concern for content producers and broadcasters. In many countries public service broadcasters are looking to extend 'must carry' rules to digital platforms in order to ensure that their programming is included within digital bouquets.

Whilst, therefore, the last decade of telecommunications liberalisation has been dominated by the drive for interconnection of networks, the next decade seems likely to be dominated by the more general issue of access, particularly in the coming digital environment where gateways and platforms will be key to plurality, competition and consumer choice.

The European Commission's Access Notice conceptually approaches these issues in the context of the Treaty's Article 82 principles relevant to the abuse of a dominant position. Thus refusal to give access to what might be termed 'essential facilities' (a concept not yet thoroughly explored or approved in EC jurisprudence) may be prohibited under Article 82 if the refusal is made by a company which is dominant because of its control of those facilities. In the same vein, in the broadcasting field the EC Directive on the use and standards for the transmission of television signals provides for non-discriminatory access by operators to digital television platforms and it is likely that this principle will be applied to access systems in general, as has already happened in the UK with the adoption of its 'access control' regime for non-broadcast telecommunication services.

Access to end users to provide them with high bandwidth services is an example of a bottleneck issue which will be relevant to the broadband environment. Many incumbents are liable to be reluctant to provide their competitors with access to local loop facilities to enable those competitors to offer such new services. Ex ante intervention by regulation would appear to be the preferred route to deal with this situation; ex post application of competition law is likely to provide little practical value. However, in such a situation a regulator with the power to set terms and conditions would have to be careful to regulate pricing at a level which would not discourage continued investment in local loop facilities.

Broadband is different.

The trouble with regulation is that it is constantly running to catch up with technological development. The advent of broadband communications with all its multi-media and enhanced service capabilities will pose another challenge to the adaptability of regulatory schemes. A simple example is in the critical area of interconnection. We are already very used to the general concept of interconnection being a matter for commercial negotiation between operators, often with different bargaining strengths, with regulation providing for intervention by the regulator in order to resolve failures to agree. There is no reason why the same concept should not be migrated to broadband communications assuming the same dynamics, particularly inequality of bargaining power, apply. The only problem is that in fact broadband raises new issues which existing regulatory principles may not have contemplated.

In Europe for example the Interconnection Directive, imposes mandatory interconnection requirements on public operators but the definition of interconnection appears to be based on the provision of publicly available telecommunication services. Whilst there is no definition of this concept in the Directive, the accepted interpretation appears to be that such services are limited to telephony, voice band and basic data telecommunication services. In certain jurisdictions, depending on the detail of local regulations, this may beg the question as to whether interconnection obligations currently encompass broadband and its enhanced features. It is also easy to imagine that incumbents will devise all sorts of ways and means for making broadband interconnection more complicated than it may be, if only to delay the day when full broadband interconnectivity becomes possible.

In terms of the next generation Net it seems to me likely that the telco interconnect model, as it may be developed for broadband, will gradually take over and replace the Internet equivalent based on 'peering'. This 'sender keeps all' arrangement for exchanging traffic across the Net depends for its viability on relative economic equilibrium between the parties (hence the concept of the transaction being between 'peers') so that neither ends up saddled with a disproportionate, and therefore irrecoverable, share of the costs of message transport. If this is to evolve into a paid-for interconnect, the main difficulty will be to devise a basis for computing those costs, since for the time being Internet traffic is neither generally measured nor particularly easily measurable on a routine basis, unlike minutes of voice calls.

Market power will still need to be controlled

Current regulatory models are somewhat obsessed by the pivotal role of the incumbent. As we move out of this era into the multi-operator environment, the possibility for abuse will nonetheless remain. Access is but one aspect of this. Other situations will emerge for which regulation will not always have a ready answer. It is, therefore, essential that competition law should be adequate for the task. In this connection, where market power is associated with market structure (e.g. Microsoft) we will inevitably be faced at times with the usual dilemma of whether ex ante regulation is the solution or a structural remedy such as divestment is the stronger medicine required. (Line of business restrictions may also have a role to play, although not indefinitely.)

The history of telecommunications appears to suggest that restructuring through divestiture can have temporary benefits but may not overcome the natural forces of consolidation. Certainly the regrouping of the Baby Bells and the AT&T/BT alliance suggest that the old monopolies have some kind of magnetic attraction to each other. Again, therefore, we need regulation to protect against market failure and we need competition law to provide the remedies and the deterrence where regulation itself is non-existent or inept.

Regulatory convergence has a limited, not general, application

Where does this leave the regulators, national and supranational, and does convergence dictate consolidation of regulatory agencies?

Well, as long as market power and control of essential facilities can be used to exclude or restrict competition in the sector, certainly a competition authority will be essential. Whether this is adequate for the task or whether in addition a sector-specific regulator, particularly one with competition law powers (e.g. OFTEL as an enforcement authority under the UK Competition Act 1998), is more appropriate depends largely on the strength of those powers and the maturity of the relevant market.

The other conundrum, whether to merge broadcasting with telecom regulation, particularly at the regulatory authority level, is becoming easier to answer as the impact of digital and interactive television services becomes more apparent. So far as concerns delivery, there is an overwhelming argument for unitary regulation of the means of transmission, to the extent this is at all necessary, since there is increasing commonality between the types of message (basic telecom, interactive, Internet, broadcasting) transported over the different networks and the issues this raises, such as open and non-discriminatory access.

In terms of content, however, there has never been a logical reason why telecom regulation should intervene. Broadcasting law is designed to deal with the core issues such as protection of minors, obscenity, violence and so on; this is readily adaptable to the world of the Net, although some countries (e.g. the UK) are looking to put some of the control over content accessibility into the hands (and the keypad) of the consumer. This would avoid charges of excessive state intrusion and censorship but may not prove as effective as hoped in actually protecting those that need protection. So, for example, putting telecom and content regulation into the hands of one enforcement agency (B la FCC) is never going to change the fact that they are fundamentally different and require a different approach.

The content of this article is intended to provide general information on the subject matter and is not a legal advice. An individual matter requires legal advice according to the specific circumstances.

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