Regulation Without Frontiers:
Europe Shows U.S. Policymakers How Not to Embrace Convergence

Progress Snapshot
Release 1.15 September 2005

By Patrick Ross *

Introduction

We've seen some troubling signals in the last year that some U.S. policymakers are eager to place new media under outdated rules meant for over-the-air broadcasters. [1] The regulatory focus isn't limited to content regulation, either. A recent House Commerce Committee discussion draft on reforming U.S. telecommunications law would provide Internet video providers some protection from unnecessary and onerous regulation, but would also require the providers to register with the Federal Communications Commission and meet certain social obligations. [2]

Perhaps these policymakers should listen to the rhetoric of their European counterparts. European Union Information Society and Media Commissioner Viviane Reding, for example, has been quick to point out the increasing convergence of networks and services, and speaks highly of the market's ability to empower consumers. So when Reding said earlier this year that she wanted to update content regulations to reflect this digital era, it would have been natural to assume the EU planned to remove archaic mandates from European broadcasters. It appears, however, that European regulators through the Television Without Frontiers (TVWF) directive will in the next three months instead impose at least some of those mandates on new media as well, including the Internet. So on second thought, perhaps U.S. policymakers should limit their emulation.

Letting the Market Work

One expects a proponent of deregulation when one hears a policymaker cite the patron saint of the digital economy, the late Austrian economist Joseph Schumpeter. That's exactly who Reding quoted in June when she launched her Networked and Electronic Media Technology Platform Initiative, known as i2010. "Our current and future action in the audio-visual area is strongly influenced by convergence at the level of networks, services and devices, made possible by digital technology," she said, explaining that "[f]rom an economic perspective, we are confronted by a high pace of development of new actors in the value chain, the 'creative-destruction' of established positions and changing consumption modes." [3] (Underscore in original.)

Schumpeter taught us that entrepreneurial innovation disrupts the economic flow and force changes in the way business is done. In turn, this leads to outdated regulatory models. It's a perfect reflection of the digital economy, which probably explains why Schumpeter is perhaps cited now more than he was when he was alive and publishing. But Schumpeter was examining markets, not rulemaking procedures. Reding, it seems, cited Schumpeter to justify her vision of "policy convergence."

Policy convergence can be welcome when it allows all services to compete based on consumer appeal rather than degree of regulatory handicap. And Reding says she recognizes "the need to modernise our existing EU rules to match the emerging digital economy and includes the Commission's readiness to abolish outdated rules which stifle the development of the communications and media industries." [4] (Boldface in original.)

Reality Fails to Match the Rhetoric

That is a well-reasoned statement that applies equally well on either side of the Atlantic. But that is not what is emerging in the TVWF directive. Based on what has been released by the EU so far, it appears Reding intends not only to leave intact detailed rules on traditional "linear" television, she intends to "translate those principles into rules adapted to new services." [5] She acknowledges that with what she calls "non-linear" television, such as webcasting, the fact that "the viewer can watch what he/she wants when he/she wants" calls for "lighter touch regulation." [6] What no one at the EU seems to be asking in the TVWF proceeding is this: Why impose any new rules on non-linear services at all?

A lot of other Europeans are asking that, but unfortunately for them they happen to be outside of the process looking in. The EU has received nearly 200 formal comments from concerned public and private groups throughout Europe. A representative criticism is from the European ISP Association (EuroISPA), which found "the absence of any real justification for the extension of scope of a revised TVWF Directive... disconcerting" [7]:

Among EuroISPA members, there is widespread unrest about a possible extension of the scope of broadcasting regulation to audiovisual content delivered via the Internet. Exciting new markets relating to online distribution of audiovisual content are in their infancy; the European Commission's traditional approach to promising new services has been to avoid burdening them with unnecessary regulation. In light of the Commission's welcome recent initiatives that attach such importance to the ICT industries, it is all the more surprising that this approach has been set aside. As these new markets offer compelling new reasons for citizens to embrace the online environment, using broadband technologies, these proposals risk not alone damaging those markets, but also creating a domino effect and damaging the prospects for broadband growth as well. EuroISPA fully supports the promotion of competition in the online sector, but believes that the approach reflected in the Issue Papers will impose barriers to market entry and innovation.

EuroISPA and others properly note that the EU has an E-Commerce Directive to deal with online regulation. In addition, EuroISPA was one of several commenters to express frustration at their inability to participate in TVWF fora. Reding now is facing a self-imposed deadline of December to unveil her new directive, in the face of massive criticism from potentially regulated entities who have felt left out of the process.

Reding finally responded to her critics this month at a broadcasting conference in Liverpool, England. "I have no intention to 'regulate the Internet,'" Reding said. She added that she had a duty to protect shared European values. [8]

Where Broadcasters Fit In

Current EU broadcasting regulations have many social elements to them. One involves quotas on local content, to ensure a wide variety of locally produced content in an effort to preserve culture. This has been the one area where Reding has publicly stated she will not fully extend existing broadcasting rules. "We certainly do not need 'quotas' on Internet content," she said last month. "We will not achieve cultural diversity by means of regulation." [9]

That may be as much restraint as the EU is willing to demonstrate, however. In Liverpool, Reding made it clear that there was a consensus in the EU that content regulation such as child protection and hate speech should also apply to "nonlinear" services, including the Internet. [10]

In the U.S. the distribution of child pornography online is a felony. Hate speech may be protected by the First Amendment, unless it's seeking to incite violence or other criminal activity. In both cases, however, it is not so much the transmission of speech itself that is being regulated, but what the speech is conveying and what actions lie behind and are promoted by the speech. Will the EU take a similar, narrow approach? Or will the EU use the precedent of protecting children and minorities to establish a jurisdictional presence over online content and proceed to regulate broadly, as some commenters in the EU proceeding fear? If the EU follows the latter path, it is not at all clear to me how they would hope to enforce content rules within the borders of the EU on a medium that is inherently global.

This new Internet regulation would be imposed just as the Internet is overrunning the dream of a 500-channel universe and replacing it with the reality of an infinite-channel universe. Increasingly web-based companies not traditionally thought of as content producers are becoming programmers. America Online recently offered web surfers interactive streaming of the global Live 8 concerts, and Yahoo! has hired the former chairman of ABC's entertainment group to oversee the production of original content for the Yahoo! site. [11] Not surprisingly, both Yahoo! Europe and AOL Europe Services have filed comments with the EU expressing concern about TVWF. [12]

Regulate Down, Not Up

The above examples reflect clearly the very convergence Reding speaks of so frequently. She and others in the EU are correct in their thinking that this dramatic change in the content distribution landscape calls for a change in regulatory approach. The correct approach, however, is always to deregulate down, not regulate up. It is in the best interests of European consumers to have the most content options available to them, so new entrants shouldn't be regulated out of the market. Those already providing service to consumers shouldn't be forced to compete with regulations not imposed on new entrants, so their regulatory burdens should be lifted. As BSkyB CEO James Murdoch recently wrote, "[t]echnology and the market are delivering the ultimate pluralism." [13]

The EU should follow the principles outlined by Ray Gifford and Kyle Dixon, namely: 1) Policymakers should never respond to appeals for equal regulatory treatment in isolation. 2) Policymakers should avoid imposing rules where market forces can achieve the same result. 3) Policymakers should recognize the importance of stable, well-protected property rights in continuing the upward spiral of investment and innovation in digital communications. [14]

The i2010 initiative was launched this year to jump-start the EU's so-called Lisbon Agenda. Formulated in 2000, the Lisbon Agenda was intended to embrace the modern era and put an end to the stagnation of European economies, particularly those in the west, and to create jobs and reduce the continent's crippling unemployment. After five years and no sign of progress on this front, the EU has come up with i2010, in the belief that the digital economy can help Europe achieve its economic goals in the next five years. TVWF is the first i2010 initiative. Given the regulatory burdens the EU is looking to impose on European companies, burdens not faced by competitors abroad, it is unclear how Reding and her fellow commissioners can believe this will help further Europe's Lisbon Agenda goals. It also serves as a timely warning for U.S. policymakers with similar designs.

Footnotes

* Patrick Ross is vice president for communications and external affairs at The Progress & Freedom Foundation. The views expressed here are his own and do not necessarily reflect those of The Progress & Freedom Foundation, its officers or Board Members.