1. CONVERGENCE AND REGULATION: GLOBAL CHALLENGE, LOCAL ANSWER Roberto Viola ERG Chairman Lisbona, September 28, 2007

2. ERG in 2007 Identification of best regulatory practices Intensify efforts to disseminate best practices Focus on challenges of today but plan for challenges ahead -Next generation networks -Convergence Debate on future institutional framework for regulation

3. HarmonisationInnovationRegulation Review of Framework Article 7 processes Recommendation on relevant markets International Roaming Regulation Review of Universal Service Broadband access VOIP Regulatory accounting systems Mobile termination Fixed termination Wholesale leased lines Monitoring and evaluation IP-IC/NGN NGN Princ VOIP IC NGN cost Convergence Bundling (abuses) Broadcasting (Access to content) Service Convergence & Consumers

4. ERG on convergence

5. Applications (email, TV, web, voice, …) NGN Cable Telco 2G/3G /4G Wifi/ Wimax Broadcast Hybrid Telco-broadcast Service Network Access Device Cable Telco Cellular Broadcast Service Network Access Device Convergence might be seen as the migration from vertical to horizontal markets, at different levels. Hybrid Cellular-Broadcast Hybrid 3G-Wimax Levels of convergence Hybrid fixed-mobile

6. Old regulatory boundaries should be reconsidered. A change of traditional perspective is required: From network/technology oriented towards service/application oriented Quick solutions must be reached to avoid the disruption of market development. Regulation must not hinder innovation. Regulatory challenges: regulation has to converge…

7. Audiovisual/data content increasingly available on several digital platforms Broadcast technologies Telecom operators FTTH xDSL fixed Unicast technologies 2.5 (Edge) 3G DVB-H mobile DTT DTH Telecom operators

8. New market and competitive scenario Limited number of channels Exclusivity of terrestrial platform and of traditional broadcaster Business model: advertising/PSB fee Vertical integration of traditional broadcaster Analogue scenario Multichannel context Increasing multiplatform environment Business model: new forms of advertising, PAY-TV, VOD… Disintegration of the TV value chain Digital scenario Regulation of spectrum Regulation of content bottlenecks can hinder the development of a pluralistic and competitive scenario

9. Impact of convergence on regulatory priorities Trade off between the need to introduce regulation to achieve a fully competitive multiplatform market and consumer protection and the need to protect investments and competitiveness of the industries involved. Regulation of content to protect consumers and other stakeholders interest in the new convergent environment Regulation of bottlenecks to encourage the development of a fully multiplatform and multi-channel environment warning Regulation of media diversity to ensure media diversity and the access of consumer to a wide range of services

10. Identify the structure of the value chain Analyse interaction between players at different levels of the chain content editor platform operator network operator Content regulation in the new environment: identify the new value chain Puts together the TV schedules or the programming archives Editorial responsibility issues Puts together the offer (TV schedules + on demand archives). Issues concerning relationship with customers Rents capacity on his network to platform operators and/or individual content editors Scarcity and access issues

11. Bottlenecks regulation in the digital TV market Access to content Acquisition of programming (channels) or premium events is essential for new platforms to compete Access to network Access to network may be critical, especially when scarce resources (terrestrial frequencies) are involved Access to platform Access to EPG and CAS for content providers: essential to reach the final users BOTTLENECKS AT 3 LEVELS!

12. The content bottleneck Acquisition of rights Market players: Tv or platform operators acquire broadcasting rights to incorporate the program in the channel or distribute it as a standalone content Acquisition of TV schedules Market players and structure: deal between broadcasters and platform operators for distribution of the channels Market structure and main features Access to content (premium rights and/or TV schedules) is critical for emerging platforms to be able to compete effectively

13. Bundling and margin squeeze. Bundling, convergence and market definition How will convergence affect market definitions? Pro-competitive and anti- competitive consequences of bundling Influence of convergence over these consequences, e.g. relationship between convergence-dominance-leveraging (input from sections on access to resources is essential) Previous analysis about bundling and market definition: new bundle may become a market when some conditions are met: low prices, technical links, … Influence of convergence over these conditions, e.g. when convergence pushes prices down, market integration trends are increased

14. Bundling and margin squeeze (2) Are there grounds for intervention? Of which type? Summary of existing regulatory tools and framework. Identify scenarios where regulatory intervention may be beneficial to competition (built upon economic mechanisms described in section 1 and conclusions of sections 4 & 5 on access to resources). Trade-off between efficiencies and anticompetitive effects

15. Digital dividend Debate on digital dividend and the allocation of spectrum capacity after switch off is ongoing in Europe. The freed up capacity may be used for broadcasting but also for other electronic communications services: demand is likely to exceed supply Flexibility/market led versus a traditional top-down approach: - Should spectrum be allocated among different type of users ex-ante by the NRAs/ministries or should the market lead the transition? - Should the spectrum be allocate as it becomes available or should it be made available only after complete switch off. - Should the spectrum be licensed for a specific use or should the licensee be let free to adjust to market evolution? Some countries are in favour of a flexible approach whereas others are more concerned to safeguard general interests such as pluralism and media diversity. Policy coordination at EU level is necessary.

16. Open issues for regulators and legislators Restrict the rights to acquire broadcasting rights for platform not managed by the operators? Introduction of a must-offer principle for generalist free-to-air channels? Extension of premium content beyond movies and sports? Regulatory trade off to be taken into considerations Pros: Increase the possibility for new platform to access content Cons: if content is not a differentiation strategy, major operators may be discouraged from investing in quality content