BT’s Response
to the House of Lords Select Committee on
Telecommunications Call for Evidence on Media convergence and
its public policy impact
1 October 2012
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BT’s Response to the House of Lords Select Committee on
Telecommunications Call for Evidence on Media convergence and its public
policy impact
Introduction
1. We are pleased to respond to this call for evidence. We agree that the boundaries between
previously separate industries, principally media and telecommunications, are rapidly blurring and
dissolving. Producing desirable outcomes for consumers, citizens and relevant industries, through a
convergent regulation regime, must be at the heart of public policy considerations.
2. In terms of the convergence of traditional media industries and telecommunications industries,
we held a clear view at the time the current Communications Act was developed, that Ofcom
needed truly converged competition and regulatory powers to address converged market
developments that were already underway, namely bundling of telephony, broadband and Pay-TV
services. Such converged offerings are now commonplace. The current regulatory regime is biased in
favour of the owners of ‘bottleneck’ assets on the media side such as premium pay-TV content, over
which there is no regulated access, and against telecoms operators who are subject to the most
invasive regulated access requirements in the world. This asymmetry is distorting markets and is
failing to deliver outcomes that benefit consumers. Consumers should have the same rights and
regulatory treatment across bundled products (ie, TV, broadband, telephony – often referred to as
‘triple-play’ service) so that they can make informed, unbiased choices but this is not the case.
3. The need to update current legislation to eliminate the problem of unequal regulation is urgent.
We expand on this below.
4. This call for evidence coincides with the Government’s review of the current Communications Act
ahead of a proposed white paper in early 2013. We hope that the recommendations of the House of
Lords Committee will be considered by the Government as part of its process of consideration of the
white paper.
Key, overarching issues
5. Any definition of convergence is likely to be, at best, accurate only on the day it is coined.
Convergence of voice, text communication and audiovisual material started some years ago and
continues today. Considering and understanding the consequences of product/technology
integration, consumer behaviour and competitor activity is an ongoing process and it will continue
to be so as technology, markets and consumer and citizen behaviour develops, the dust has not
settled.
6. In relation to the other key, overarching issues our view is that the major focus of the inquiry
should be to rectify the current imbalanced regulation of converged bundles that is fundamentally
detrimental to consumers. The ‘bundling’ of fixed-line and mobile telephony, pay-TV and broadband
is a phenomenon of convergence, which presents significant regulatory issues as constituent parts
are regulated in different ways.
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7. Given the increasing significance of triple-play services to UK consumers, it is important that
consumers should be able to choose these bundles based on a level playing field between providers.
This is not the current situation. The different individual regulatory treatment of the bundle
elements can lead to consumer confusion and distorts the effectiveness of competition in the
market. Suppliers with dominant positions in a media market can take advantage of the absence of
effective remedies and protect their customer base, whilst simultaneously availing themselves of the
more pro-competitive telecommunications regime to acquire market share. This asymmetry should
be addressed.
8. Consumers expect to have the same rights and regulatory treatment across bundles, such as the
right to cancel, alternative dispute resolution rules, protection from mis-selling, amongst others. This
is not the case due to the different regulatory structures that apply to otherwise converged content
and communication services.
9. We believe that the imbalance in regulation is leading to Pay-TV customers being penalised
through relatively higher subscriptions compared with the experience in the telecommunications
markets. The current telecommunications regulatory regime has produced a highly competitive
broadband market (BT’s market share is 30%, the lowest of any incumbent telco in Europe); higher
broadband speeds (up by over 30% over the past seven years and falling residential broadband
prices (down 40% over the same period). As a result, Britain’s consumers have benefited significantly
from substantive declines in the price of broadband as well as increased choice, innovation and
performance. Comparative benefits have failed to accrue to consumers with regards to pay-TV as
the market remains highly concentrated (Sky’s share of the Pay-TV retail market is persistently above
60%), with very low levels of switching in comparison to telephony and broadband, and pricing that
is flat or rising.
10. Recent decisions in the pay-TV market show that the regulatory regime in this sector is fractured;
regulatory bodies seem powerless and the pace of regulation has not kept up with market
developments. We outline here the areas that need consideration to grasp the opportunity to begin
an evolution in regulation, through a converged regime, which will deliver customer benefits
through greater choice, innovation and competition.
A future Communications Act
11. BT believes the focus of the next Communications Act should be to fulfil the promise of the last
Communications Act: to deliver a properly converged regime to reflect the realities of the
converging elements that form today’s communications industry.
12. We believe that to do this requires adopting measures that ensure the regulation of media
sectors is consistent with the model of regulation applied to the telecommunications sectors. The
regime regulating the telecommunications sectors is set down in European Directives and is not
open for change. The same is true for the spectrum regime. However, for the media side of the
industry it is open for the UK government to determine how these markets should be regulated.
13. The regime regulating telecommunications sectors is basically economically and legally sound; at
its foundation is a mature, rational and structured approach, consistent with well-established
principles of competition law and economics.
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14. There are some shortcomings within telecommunications regulation and we indicate ways to
address them below; if these were adopted, the ‘improved’ approach should be applied to the
media sectors to guarantee a uniform and more satisfactory regulatory approach to a converged
sector. The shortcomings we observe in the current telecommunications regime are that it suffers
from:
a) a prescriptive approach to identifying the markets that have to be defined, which leaves
limited flexibility to adapt to market dynamics
b) a tendency towards interventionism in all cases, which is embodied in the obligation on
National Regulatory Authorities to intervene in the event that they find a market failure
c) an inconsistent application of the framework across EU countries.
15. To align this regime to the media sectors would simply involve copying the powers that Ofcom
has for telecommunications and applying them to media: the powers to define markets, identify
market failures (including, but not limited to, market power), and the design of remedies to promote
effective competition and provide a consistent level of protection for consumers.
16. To overcome the over-prescriptive market definitions prevalent in telecommunications, the new
Act should empower Ofcom to define the markets it sees in sectors where there is not a body of exante case practice, based on standard market-definition techniques used in legal and economic
competition analysis.
17. To overcome over-interventionism, Ofcom should have the power, but not the obligation, to act
where it sees market failures.
18. The third of these flaws is not addressable within the context of the current UK Communications
Act review, but we would be supportive of efforts by UK Government to press for fair and consistent
application of the framework across the EU.
19. Thinking about media sectors in this way, distinguishing between interventions designed to
promote the effective operating of market mechanisms from those applied for other social
purposes, has the benefit of clarifying the purposes and main objectives of media regulation.
20. Taking this uniform approach would help sweep away the legacy of heterogeneous provisions
and statutes regulating the media sectors, particularly the licensing regime.
21. The last Communications Act swept away 20 years of telecommunications licensing, which
compelled companies to have a licence in order to operate, and to which any kinds of provisions that
the regulator thought desirable could be added - but were rarely subtracted. In its place, the
Communications Act 2003 established a regime of general authorisation with three broad types of
regulation:
• General conditions regulating the overall conduct in the sectors, allowing any organisation to trade
without needing a licence, so long as they observe the general conditions
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• Significant Market Power (SMP) conditions imposing particular requirements on operators
identified as having significant market power, but constraining those to remedies supported by
proper analysis
• Universal service Obligation (USO) conditions providing for the universal provision of services of
social benefit.
22. The same approach should be applied to media markets. The legacy licensing regime could be
dispensed with and a general authorisation regime put in its place, with general conditions
regulating activity in the consumer/viewer/listener interest. SMP conditions could be imposed on
organisations identified as having significant market power, as could USO conditions for promoting
matters of social interest.
23. This is particularly relevant and significant given the increasing significance of bundling of
telecommunications and media products into a single offer to consumers, as discussed in
paragraph 7.
24. Convergence also extends beyond traditional industry-to-industry aspects. Consumers and
citizens are changing the media and communications landscape themselves as they increasingly
source and develop their own ‘information, education and entertainment’ and actively
communicate/distribute such material to each other. The results are a looser and less passive
relationship with traditional industry providers, with citizens and consumers playing a far greater
role in innovation, shaping culture and the rise and fall of business models. These phenomena raise
wide-ranging and significant issues of public policy. Facilitating desirable outcomes for consumers
and citizens in this regard must be at the heart of public policy considerations.
25. Approaches to content standards and consumer and citizen protection will need to take into
account the extent to which user-generated content/ information may be in issue. These should,
therefore, adopt a more intense focus on treatment of freedom of speech and the range of
limitations on that from general law (criminal and civil). The questions on what kinds of additional
regulation, if it should be specific to the media-converged industries and the wisdom and
practicalities of addressing issues through a single converged regulator are more open questions
which need careful assessment.
26. In summary, the guiding principle in a world where although convergence is hard to define and
keep up with, is that regulation must be flexible enough to be applied across all content and services
equally.
Convergence and Content Standards Regulation
How much are consumers aware that the content they engage with over the same platform may
have a legacy separate from its competitors, leaving it subject to different regulations?
To what extent are consumers satisfied with the different approaches? What do consumers expect
and need in the way of content standards and protection in a converged world?
27. We believe that consumers are likely to understand that different types of content that they
engage with over a single platform may come from different sources and so, whilst perhaps not
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formally recognising the extent to which various content may be regulated differently, they are likely
to expect different things from different types of content and thereby recognise that it may be
appropriate for them to be treated differently.
28. It is likely that consumers would expect that there should be some differences in the way things
are treated based on common-sense propositions such as whether the platform is a push or pull
mechanism. For example, it is likely that consumers recognise the concept of the watershed for
broadcast TV and would expect content screened before the watershed to respect those rules. In
the case of on-demand content which can be accessed at any time, consumers are likely to recognise
that a watershed does not apply but may have expectations of information being provided about
aspects of the content, such as general descriptions of type suitability for different ages etc. to
inform their viewing choices.
29. The UK’s implementation of the Audio Visual Media Services Directive 2010 (AVMS) recognises
that there are differences between traditional broadcast services and ‘TV-like’ on-demand services
and customer expectations of them, that services and customer expectations are likely to change
over time, and that the regulatory system should be able to assess and respond to such changes.
30. The co-regulatory system adopted, ATVoD, with Ofcom as backstop regulator, is designed to
adapt to changes more quickly than pure Ofcom regulation. For example, ATVoD and Ofcom have
grappled with the issue of identifying which converged services fall in and outside of the remit of
AVMS regulation, most recently on when video content on newspaper websites should be
characterized as provision of a ‘TV-like’ service or not. Ofcom has provided a decision and future
guidance for ATVoD which has been swiftly implemented:
http://stakeholders.ofcom.org.uk/binaries/enforcement/vod-services/sunvideo.pdf
31. Ofcom has reviewed the system this year and there is recognition that it is working well in
Ofcom’s decision of 15 August 2012 to delegate more to ATVoD:
http://stakeholders.ofcom.org.uk/binaries/consultations/on-demand/statement/statement.pdf
32. Insight and assessments of customer expectations in converged media is the subject of research
and review by Ofcom, How people assess online content and services,
http://stakeholders.ofcom.org.uk/binaries/research/media-literacy/report.pdf. In addition, the 15
August 2012 decision on ATVoD (para 3.9) refers to Ofcom being currently engaged on a research
project intended to cast light on consumer behaviour and expectations of regulation for media in
this area. The output should prove useful information to answer the inquiry’s question on this point.
However, we believe that what is required is both relevant regulation as well as educating
consumers so that they are aware of what to expect, and, if necessary, where to raise their
concerns.
What impact does convergence have on increasingly important issues such a privacy and data
protection?
33. Privacy and data protection are increasingly high-profile issues. The EU has made proposals to
revise its current generally applicable 1995 legislation to better address these issues in a digital and
globalised age and produce a balanced regime which delivers appropriate protection of consumers’
and citizens’ rights as well as enable growth, job creation and innovation.
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34. We do not consider it appropriate to develop siloed rules on privacy and data protection solely
for the converging media/telecommunications industry. The approach should be to make the
general rules on privacy and data protection fit for purpose across all industries and activities so that
consumers recognise and understand the benefits as well as the risks to their privacy and personal
data inherent in today’s more complex and interconnected world.
Where should such powers to intervene be located? Should there be one regulator for all content?
Should this be separated from the regulation of competition?
35. BT believes that there should be one regulator in order to ensure that issues around competition
and content are regulated effectively in a coherent convergent regime. However, other aspects of
content issues, such as data protection/privacy, child protection and copyright protection, etc,
should be regulated through existing means, rather than being shoe-horned into a single regulatory
body.
Convergence and competition
What and who are the emerging holders of power in the new converged world? How do they relate
to and alter the traditional holders of powers? What is their effect on plurality and how should
plurality in the context of these new players be ensured; is it better that they are diverse enough to
provide external plurality, or that they are committed to providing access to diverse sources, offering
a form of internal plurality? How should such ends be achieved?
36. The holders of power in the converged world are owners of assets that cannot be accessed or
replicated – bottleneck assets. Ownership of unregulated bottleneck assets is able to drive dominant
market positions across the value chain. BT is the owner of a bottleneck asset in the form of the
copper access network. However, access to this asset is regulated on the most intrusive basis of any
country in the world, through Ofcom’s use of its powers under the Communications Act and the
undertakings it has taken from BT under the Enterprise Act. As a result BT’s market shares in the
retail market are the lowest among incumbent telecoms operators in the world, with only 30% of
the broadband market.
37. There is in fact only one owner of bottleneck assets in the UK which is unregulated and that is
Sky in its ownership of premium pay TV content and channels. It is impossible to outbid Sky for the
premium sports and movies rights on a commercially viable basis, because they have all the
subscribers and so can always afford to outbid rivals. As a result Sky holds an unregulated dominant
market position in the retail market with a share of about 60% and near monopoly positions in the
wholesale channel markets for premium pay TV sports and movies channels with market shares of
between 80% and 100%. This power base is not only an issue for competition in pay TV markets, as
found by Ofcom and the Competition Commission, it is also a major issue in the plurality debate.
38. We consider that plurality is really only one of a subset of content regulation on diversity and, as
with all content regulation, in defining any new regime we should ask ourselves whether such
regulation remains appropriate in the converged world. In terms of how plurality can be measured
effectively, we believe that Ofcom’s recent report is an effective starting point for any discussion and
the LSE’s paper Regulating Media Plurality and Media Power in the 21st Century
http://www2.lse.ac.uk/media@lse/documents/MPP/Policy-Brief-7-Media-Pluralism.pdf provides
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food for thought on features which should be considered in developing an updated converged world
approach to plurality.
39. In order to construct a healthier media ecosystem, the regulatory authorities need to address
not only the issue of over-concentration in media markets which runs the risk of stifling diversity of
opinion, but also the underlying market power of certain media players, specifically Sky, which is a
competition issue that underpins the uneven weighting of power in the plurality of media.
How much does convergence call for a different approach to thinking about the definition of
communications markets and competition? How should the relevant markets and market power be
defined in a rapidly changing world?
40. We have outlined earlier our views that an ex ante regime should operate in a converged world.
Such an approach would allow the legacy licensing regime under the Broadcasting Act and other
relevant acts to be swept away and replaced with a general authorisation regime with general
conditions regulating activity in the consumer/viewer/listener interest, plus SMP conditions on
organisations identified as having significant market power and USO conditions for promoting
matters of social interest.
41. We believe that the speed of change of converging markets means that the regulator, Ofcom,
should have the power to define markets in response to the facts of market conditions, rather than
by reference to a prescribed list from the European Commission. It should have the same powers to
define markets in a converging world across the whole of the communications and media sectors,
using the traditional legal and economic framework of market definition that underpins the
European regulatory framework built into the Communications Act.
42. We believe that the telecommunications and media industries can be thought of as operating at
three distinct levels. The first level relates to the markets in which the economic activity takes place;
second, the nature of the content provided by these economic activities; and third matters of
consumer and citizen protection. These three levels are consistent across these sectors.
Level one
43. In media markets the market level covers activities from upstream content rights creation (eg,
sports rights) to programme productions, to channel markets, either broadcast free to air or
‘wholesaled’ to content retailers, which are distributed across platforms/networks to retail markets,
including advertising markets and perhaps to markets in search/user interface.
44. In a converged regime, we believe the ad hoc regulation (such as s316 of the Communications
Act 2003, which currently deals only partially with this economic level) should be replaced by a
rational, economic analysis of the markets in which the activities operate, so that the interventions
can be designed and adapted to the market conditions appropriately. We believe that it is not useful
to predefine the markets but to create a model that is flexible enough to allow markets to be
defined as necessary.
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Level two
45. A key distinction between telecoms and media markets to date is that the nature of the content
produced in media markets has been regulated on two bases, one relating to standards and one
relating to diversity. The content standards relate to a range of ‘social’ issues such as taste and
decency, fairness and privacy, impartiality.
46. We believe that in a new regime, these requirements could be embodied in general conditions,
which could give wider and more consistent application of the requirements across distribution
media. Whilst it is appropriate to consider what differences in approach might be necessary for on
line “pull” distribution/user generated content compared with traditional broadcast “push”
distribution, it would be good to have the freedom to do what is right for content standards
(however distributed) rather than being limited by the current licensing regime which only has
specific application to a particular platform.
47. The current regime also includes a variety of requirements to promote diversity and quality of
content including public service broadcasting obligations, production quotas, regional production
requirements, provisions to promote localism, etc. We believe that much of this current regulation
can be seen as similar in nature to the universal service obligations applicable in the telecoms and
postal sectors. PSB requirements, universal coverage, children’s’ programming and audio
description are a recognition that commercial imperatives might not otherwise deliver these things
because it may be uneconomic and that there is a social benefit in requiring these things to be
delivered.
48. Adopting BT’s structure of an approach based on a general authorisations regime where all
parties can be subject to conditions of a general nature and then over and above to apply universal
service obligations to be imposed where warranted, would allow for much of the current regulation
to be replicated in a manner that crossed platforms.
Level Three
49. We believe that the third level of regulation is how viewers/listeners/consumers are protected
appropriately in the consumption of telecommunications and media services. Much of the current
debate has related to online content and has suggested that ISPs should bear a specific role in
protecting consumers/children or in protecting copyright of third parties. We would urge a cautious
approach: as with privacy and data protection, the objective should be to ensure that the relevant
rules dealing with issues such as protection of copyright, fraud prevention, incitement to racial
hatred, defamation, etc, are fit for purpose both in an online and offline world and then ensure that
these rules are appropriately applied. The benefits of self-regulation also need to be recognised.
The default response in a converged world should not be that if there is an issue and it arises on the
internet that ISPs should be regulated and should bear the responsibility of dealing with this issue.
To what extent does the packaging of services (eg, triple play bundles) and in particular the
packaging of delivery services with content services raise to competition?
50. As we stated earlier, competition is increasingly based on triple-play bundles. As matters stand
there is a mismatch of ex ante regulation (regarding competition matters) between the different
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elements of the bundle. Therefore, whilst the broadband and telephony elements of the bundle are
required to be made available in order to increase the number of providers who can offer those
elements of the bundle to consumers, the key third element of the bundle, the pay-TV content and
in particular the premium sports and movie content which drives many consumers subscription
choices, is not subject to the same effective regulation. This has led to a situation where within the
UK there is one player who effectively dominates premium content and which, through its conduct,
can effectively lock out other competitors from competing as efficiently for triple play customers,
given the importance of that content. This lopsided effect of regulation means that triple-play
customers are not getting the full range of innovative and efficiently priced services that could be
available to them.
What is the right regulatory structure/framework for competition in the light of convergence? Should
responsibilities continue to be shared by a number of separate authorities or swept up into one? How
effective/relevant is this shared responsibility now?
51. The right regulatory structure/framework is one where both the media and telecoms sides of the
market are subject to a similar structure and one that is sufficiently flexible to deal with change in
the future. The overarching purpose of regulation in the sector should be to enable markets to serve
and empower citizens/consumers. Regulation should be designed to enhance citizen/consumer
outcomes by enabling markets to serve the dynamic needs of citizens/consumers and by
encouraging investment through a clear, fair and predictable regime which will drive the innovation
that flows from increased competition, enhanced by essential consumer protection measures.
52. We believe that Ofcom is most likely the best authority for dealing with the complexities of
converged regulation, so long as it is given enabling powers rather than obligations to act and
provided that it is adequately resourced.
In sum, how can we encourage effective competition, which will deliver great value to consumers and
encourage innovation and investment in the UK?
53. The current Communications Act should be updated so that it is truly converged in its approach
to competition in content markets. Convergence of media and telecommunications industries is
already well-established in the provision of bundled services. This change is needed to address the
current lack of effective competition which is providing poor value on content and choice for
consumers and acts as a brake on innovation and investment in the UK.
We would be happy to discuss these issues further. Further enquiries can be directed to David
Pincott, Head of Political Research, Policy and Briefing, BT Group Plc
Tel: 020 7356 6585/email: david.pincott@bt.com
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