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JILT 1997 (3) - Chris Marsden 1

The European Digital Convergence Paradigm:

From Structural Pluralism to Behavioural Competition Law.

Chris Marsden LL.M.
University of Warwick


1. Introduction
2. Historical Divergence of European and US Communications Regulation
3. Europe: Developing Regulation
4. Europe: Satellite Programme Monopoly
5. US: Competition in Pay-TV
6. US: Competitition and Essential Facilities
7. Europe: Essential facilities
8. US: Turner v. FCC
9. Europe: Competition Regulation of Public Policy
10. UK: Competition Regulation
11. UK: Regulation of Programme Bundling
12. Europe: Statutory Essential Facilities
13. Europe: Structural Regulation of Monopolists
14. Europe: Immediate Prospects for Digital Pay-TV Regulation
15. International: Wintelism, Standards and Markets
16. Conclusion

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This article argues that a new paradigm of competition communications regulation, sharing its fundamental economic perspectives with United States communications regulation, is emerging in the European Union. This new paradigm of behavioural competition regulation will present radical economic challenges to the historical model of structural and content regulation, which prioritised European cultural diversity and plurality. The article surveys US, UK and other pay-TV systems as examples of 'converging' approaches which can be adopted across the EU. The Union's reaction to these challenges is more problematic and complex than its initial adoption of the paradigm. The distinctive nature of the European vision of the 'Information Society', as contrasted with the US 'Information Superhighway' metaphor, has thus far evaded legislation, policy and even practical definition. Whether specific policy will develop from rhetoric is, therefore, the European challenge.

Keywords: Communications, Competition, Digital Convergence, European Commission, Regulation.


I am grateful to the editors of Utilities Law Review for permission to reproduce extracts from an earlier version of this article, printed in Current Survey, 8 Util. LR at 114-119. I am also grateful to Stefan Verhulst, Tony Prosser and Lesley Hitchens for comments on various drafts. All errors and omissions are mine.

This is a Refereed Article published on 31 October 1997.

Citation: Marsden C. T., 'The European Digital Convergence Paradigm: From Structural Pluralism to Behavioural Competition Law', 1997 (3) The Journal of Information, Law and Technology (JILT). <>. New citation as at 1/1/04: <>

1. The Paradigm of Competition

This article argues that a new paradigm of free market competition following the US model is emerging in European Union communications policy. This is likely to be ushered in by the European Commission's Convergence Green Paper to be published[1] in December 1997 by DG XIII (telecoms). This paradigm will present radical economic challenges to the development of European cultural diversity and plurality. The European Union's reaction to these challenges is more problematic and complex than its initial adoption of the paradigm. The second Convergence Green Paper, to be composed by DG X (broadcasting) in spring 1998, may be expected therefore to provide greater clarity to the distinctive European nature of the 'Information Society' vision, as contrasted with the US 'Information Superhighway' metaphor. Whether specific policy will develop from rhetoric is, therefore, the European challenge.

This paradigm will impact on five formerly discrete European regulatory arenas (see Table 1): specific media pluralism; structural regulation by prior restraint licensing; regulation of programming content; vertical regulation of discrete distribution technologies; and a nationally differentiated, culturally specific, and distinctively European mass communications environment. The paradigm of competition, already operational in the United States, will fundamentally and decisively change both market structure and institutional regulation policy-making.

Existing Regulatory Function

Emerging Competitive Structure
Paradigm Market Effect
Pluralism (DG XV)
Competition (DG IV)
Dynamic Market Entry
Prior Licensing

Structural (DG XIII)

Class Licensing

Behavioural (DG IV)

Dynamic Competition;

Increasing Complexity

Programming &

Content (DG X)

Conditional Access


Economic Regulation

Usurps Cultural


Segmented Sectoral





European Commission 'Competing' Models
US 'Unified'

FCC model

Audience Fragmentation

Regulatory Consolidation

Table 1: Five Paradigms of European Communications Regulation

The telecoms behavioural model of regulation, a post facto examination of abuse of dominant position related to Treaty of Rome Article 85 jurisprudence (see s.9), contrasts with licensed prior consent in the traditional televisual sector (see s.13). The latter model presupposes and legitimises dominance subject to strict content rules and wide discretion for the regulator. Under a convergence model, these regulatory structures will be replaced by a horizontal competition-based approach. In order that convergent markets do not suffer the same oligopolistic fate as their vertically segmented telecoms and televisual forebears (ss.3-4), it will be necessary for national and EU legislators to adopt a strict behavioural regulatory approach. This conclusion follows from the first case study examined, the relatively successful US pay-TV experience of strict and co-ordinated regulatory action (ss.5-8).

The second and third case studies examine respectively the UK (ss.10-11) and, in the third case study, continental European competition challenges (s.13). These difficulties arise from transnational vertically-integrated satellite operators' domination of programme rights and the cable-PTT operators' refusal to deal in those rights. National markets surveyed include Holland, Germany, France and Spain (s.13). The European Union's regulatory failure on a continental scale compares unfavourably with American experience of compulsory licensing of programme rights and the essential facilities doctrine (ss.7,9) which governs the satellite-cable interface. Given the growing concerns at European Commission level, the article will then examine the European case for strict and coordinated regulation as in the US model, including the radical alternative of complete horizontal separation of programming from distribution (ss.12 & 14). It will conclude by considering self-regulatory industry standards in pay-TV (s.15), an issue of critical importance to international competitiveness as recognised by the Bangemann Report.

2. Historical Divergence of European and US Communications Regulation

Commercial television regulation in Europe and the US is historically divergent. In Europe, the over-riding political importance ascribed to the medium resulted in strict prior regulation of both content and structure. In the US, First Amendment protection of free speech has led to an artificial obsession with exclusively structural controls, though government has contrived to ensure similar outcomes (see s.8). The exponential growth in channel capacity exploited by cable and satellite distribution has undermined the prior restraint which European regulators asserted. By avoidance of domestic spectrum and therefore licensing, satellite transmission has outflanked the ultimate regulatory sanction of revocation of licence.

As transfrontier television develops, the European Union's economic regulation of industry structure has increasingly encroached on domestic and intergovernmental regimes which formerly exerted exclusive regulatory jurisdiction (Collins 1993).It is suggested that this evolving European structural approach can learn important lessons from the US legislature's, FCC regulator's, and courts' experience in exerting structural competition control to gain desirable outcomes. This was foreseen in Brenner's report for the OECD (1993). As Herbert Ungerer of DG IV (Competition) has said (1996):

Consumer benefit will result from increased possibilities of supply only if markets are liberalised and gates are kept open. Vertical integration can be tolerated only if access to bottlenecks is ensured. [Competition Commissioner] Karel van Miert has made it clear...that the European Commission is ready and determined to take up the challenge for EU competition law which these developments imply.

It is further suggested that structural separation of carriage from programming would provide much-needed regulatory stability and transparency, enabling corporate actors and regulators to concentrate on their core competencies within a framework which acknowledges mass communications as a uniquely sensitive industry prone to market failure. The assertion of control over mergers of dominant actors by DG IV (s.13) contrasts with the more laissez-faire approach of DG XIII (s.12), leading to corporate and regulatory uncertainty and instability.

3. Europe: Developing Regulation of Digital Pay-TV

A quasi-autonomous European television regulation model evolved from the 1940s, with democratic principles given primacy in its regulation (Negrine 1994). It is increasingly characterised by a vertically separated industry structure, free at the point of 'sale' with positive externalities (Collins and Murroni 1996). Through transfrontier competition, privatisation, and EU action outlawing advertising cartels or exclusive licensing, the traditional regulatory system has been undermined since the 1980s. The radically different pay-TV model has transformed market structures and regulatory practices in the 1990s, as predicted by Peacock (1986). Digital compression will permit more efficient use of broadcasting spectrum and potentially lower market entry barriers in the near future. It is a technological advance which many exponents have presented as a paradigmatic, determinist 'revolutionary' policy choice.

Digital compression promises a more competitive industry structure in two non-spectrum video delivery platforms: telecoms and cable systems. Analogue free-to-air television has adopted an increasingly vertically-separated structure. National and European law has required commissioning of independent production since 1991 together with common carrier transmission provision (the UK, for instance, privatised its two transmission networks in 1991 and 1996). By contrast, telecoms remains a vertically integrated industry, primarily government-owned until this decade. It remained under governmental control due to the high sunk costs, strategic importance and perceived monopolistic nature of the market. Cable systems, most widely developed in Benelux, Scandinavia, and Germany, were originally an alternative distribution platform for free-to-air channels. European public policy has explicitly encouraged cable build, whether through direct investment, state subsidy or deregulation. The recent upgrading of cable systems and the building of fibre-optic networks has enabled cable operators to offer telephony and Internet access; telecoms networks will also be able to carry video. This convergence of telecoms and televisual markets is paradigmatically represented by the pay-TV market, the subject of the case studies in this article.

4. Europe: Satellite Programme Monopoly and Cable Distribution Monopsony

The policy dilemma is in the hybrid nature of satellite and cable distribution, combining structurally regulated television and behaviourally regulated telecoms. DG IV has generally ceded jurisdiction thus far to member states and the Council of Ministers. Substantial market failures have occurred across the EU, as either satellite, or more frequently, dominant cable operators, have utilised monopsony or monopoly power to foreclose domestic markets. The wholesaling relationship in which satellite operators supply programming to cable systems is confrontational and controversial. Competition is largely due to the fact that most cable and satellite conditional access systems (CAS), which provide access to programming for retail customers, are proprietary. The gatekeeper function which CAS serves is the richest link in the value chain, over which both cable and satellite operators claim jurisdiction. Both cable and satellite pay-TV operators 'cherry-pick' from free-to-air viewers, in contrast to the universal service obligation of traditional public service television[2].

These problems appear novel in television because of its formerly strict vertical separation and government ownership of bottlenecks (Temple Lang 1996: 5). In order to meet the pressing need for re-regulation, the European Commission and member states should ensure compulsory licensing[3] and access to essential facilities in the value chain. Ideally, a return to vertical separation would best meet competition and pluralistic concerns, a conclusion shared by Cowie and Crowther (1997:25).

5. First Case Study: US Competition in Pay-TV

As in Europe, US pay-TV is regulated by competition law, industry-specific regulation, and the courts' application of basic constitutional principles (Johnson, 1994; Crandall and Fruchtgott-Roth, 1996). A further similarity lies in the control exerted by individual states in the choice of programming and cost to consumers. Since April 1993 (FCC 1993) compulsory licensing under the Cable Television Consumer Protection and Competition Act 1992, (Poe 1992) has enabled the availability or 'unbundling' of programming to all distribution platforms. The statute was enforced by a vigorous joined case brought by forty state attorneys-general and the Department of Justice against vertically integrated direct-to-home (DTH) operator Primestar (United States v. Primestar Partners, L.P. 1993). Primestar was a medium-powered analogue satellite direct-to-home service (similar to BSkyB in the UK) owned by a consortium dominated by cable system operators. As a result of the case, the consortium was substantially diluted.

This competitive safeguard has enabled the entry of four independent DTH digital satellite TV (DST) broadcasters into the pay-TV market, which was hitherto dominated by cable companies. The DTH DST market is flourishing even though at the end of 1996 it totalled less than 5 per cent of US TV homes. As Katz (1997) acknowledges, local rate regulation (the further layer of regulation provided in the 1992 Act), proved unnecessary given the competitive safeguard against programme bundling. Critics continue to press for yet tighter control of vertically integrated actors: both cable 'must carry' of local terrestrial broadcast stations (see s.8) and a wider common carrier obligation (Nadel 1992) are sought. The latter provision would ensure that programmers could access consumers without fear of abusive practices by either satellite or cable operators.

6. US: Competition in Essential Facilities

An essential facility is one in which duplication of a given facility, for instance a railroad, local telecoms network or oil pipeline, is precluded by the monopolist's inherent ownership advantages, but without which competitors cannot access the market (Furse 1995). Extension of the analysis to pay-TV CAS raises complex problems in digital pay-TV. Is a single CAS system an essential facility in a national consumer market? Is access to individual premium programming events (e.g. football matches) a further essential facility in a pay-TV system's viability? Beyond competition regulation, is there a wider public interest in declaring digital pay-TV bottlenecks to be essential facilities? The risk in regulating emerging distribution chains is of stifling entrepreneurship, an important policy consideration in the analogue pay-TV market investigation of UK competition regulator OFT (Marsden 1996, p. 216). Without adequate return on capital, BSkyB investment would not have been forthcoming (see s.10).

Phillip Areeda (1990:841) has criticised US jurisprudence for extending the concept of competitor access to monopoly bottlenecks in a distribution chain from 'an extreme case' until it 'ultimately becomes ridiculous:' 'judging by catchphrase'. He saw 1980s US jurisprudence as the expansionary phase. The landmark cases of Terminal Railroad (1912) and Associated Press (1945) provide initial guidelines for European policy-makers. In the former case, a consortium's purchase of an existing railroad essential facility led the Supreme Court to insist on all competitors being granted access. In the latter, which Areeda describes as 'a more doubtful case', Associated Press was disbarred from applying non-competition clauses to new membership of its news agency consortium. In the deciding judgment, Frankfurter J. (at p.29) stressed the importance of extending the concept of 'public utility' in the interests of 'such access to the function of a free press in our democratic society.' There is thus expressly stated a presumption of access to essential facilities in the interest of media pluralism. MCI v. AT&T (1983) further establishes that public policy of access to communications must not be flouted by a monopolist.

7. Europe: Essential Facilities

The stridency of the phrasing of Article 86 of the Treaty of Rome 1957, as compared with its elderly US counterpart the Sherman Act 1890 (s.2), provides strengthens the legitimacy of reform-minded Commission officials. The use of an essential facility to leverage dominance by a vertically integrated actor into adjacent markets is now recognised by DG IV as an abuse of a competitive position (Temple Lang 1994, White 1995, Ridyard 1996). It is on public policy grounds that any attempt to impose 'essential facilities' jurisprudence on European digital TV actors is strongest. If policy-makers decide that there are pluralistic public policy grounds for enforcing 'essential facilities' doctrine on pay-TV CAS or programming, the US precedents of MCI v. AT&T and Associated Press surely support that policy decision.

One can identify increasing enthusiasm for the essential facilities doctrine in Europe in the 1990s, from British Midland/Aer Lingus (1992), B&I/Sealink, Holyhead (1992), Sea Containers/Stena Sealink (1994), Port of Rodby (1994), Port of Roscoff (1995), Irish Continental Group/C.C.I. Morlaix (1995)[4], culminating in the more generous recent reinterpretations put on Magill TV Guide/ITP, BBC and RTE (1989). That case dealt with the state broadcasters' (RTE in the Republicof Ireland and BBC (Northern Ireland)) refusal to deal in programming information. They refused to supply programme schedules to an innovatory Magill/ITP product, a combined TV listings magazine for the whole of Ireland, a geographical market in which neither broadcaster published a rival product. The Court upheld the Magill/ITP complaint against the broadcasters. The initial Commission decision in Magill could tenuously be held to apply a general duty to deal in intellectual property essential facilities, extending even to major sports coverage. This stretches the credibility of the doctrinal approach. It is better analysed as a flagrant abuse on the facts from Advocate General Gulman's analysis (1991). This narrow interpretation is supported by the Court of First Instance decision in Koelman v. Commission (1996).

8. US Common Carriage Programming: Turner vs FCC

The difficulty which US courts face, which provides a telling example to European regulators extolling a competition-based system, is that industry-specific regulation appears to 'reveal a content based preference for broadcast [public service] programming' (O'Connor J). In Turner vs FCC(1997), the Supreme Court divided in its opinion as to whether the 'must carry' rule for cable operators of local terrestrial free-to-air stations constitutes:

i) competition regulation entailing light judicial scrutiny (Stevens J. and three others),

ii) industry-specific public policy (Breyer J concurring in part), or

iii) content regulation which under strict scrutiny is an unconstitutional breach of the First Amendment (O'Connor J joined by Scalia, Thomas and Ginsburg JJ).

Stevens J. stressed 'If this statute regulated the content of speech rather than the structure of the market, our task would be quite different', in that strict scrutiny would apply. Breyer J. took the view that a 'best fit' public policy solution supported the majority, without adopting stricter scrutiny. By this judgment, he ensured a 5-4 majority for the FCC rules. In the dissenting view of O'Connor J: '[F]ive justices of this Court [including Breyer J] do not view must carry as a narrowly tailored means of...preventing anti-competitive behaviour', which in his view compelled strict scrutiny. Under such a test, he believed that the Court would have to concur with him that 'must carry' is thus unconstitutional, and 'must surely fail'. Barendt has examined the flaws in the continued and artificial US Supreme Court attempt to separate structure and content (Barendt 1997). However contrived the doctrine examined in this case, it is evident that wider US regulation of pay-TV has resulted in a broadly competitive market. It is against this background that the European Commission framework for regulation is considered (s.9 &12), with national markets forming the second (UK, ss.10-11) and third (continental, ss.13) case studies.

9. European Commission: Competition Regulation of Public Policy

European public service broadcasting goals of quality and diversity are not content-neutral. European regulators, unhindered by US precedents for the unconstitutionality of content rules, should be explicit in their embrace of such content-biased policy. The problem met in the Court of First Instance's European Broadcasting Union (1996)[5] decision is that the application of general competition law fails to embrace these wider policy goals.

The EBU, the European public broadcasters' cartel, performs a video service somewhat similar to the print operations of the Associated Press in the US. Excluded commercial broadcasters, which compete with the EBU for sports rights, had complained that the widening of EBU membership to various commercial broadcasters (in the case of Canal even a pay-TV channel) undermined the original public policy rationale for granting an exemption. The Court found that EBU was in breach of its obligations under Article 85(3), which grants prior notified exemptions for cartels which operate to the benefit of consumers or economic welfare, express economic parameters. DG IV had always given such an exemption under Article 90(2) in the public interest. This wider public policy consideration was struck out by the Court. DG IV is now helping to prepare the case for EBU's appeal to the European Court of Justice on narrower competition grounds.

In contrast to these excruciating legal manoeuvres, the revised Article 4(3) of Directive 89/552/EC legislates the will of the European Parliament. The article ensures that transfrontier broadcasters must respect national legislation enforcing compulsory free-to-air carriage of specific listed events, such as national team sports finals.

10. Second Case Study: UK Competition Regulation

The Director General's Review of BSkyB's Position in the Wholesale Pay TV Market was released by the Office of Fair Trading (OFT) on 19 December 1996 (see generally Marsden 1996). The report itself produced few surprises: the pay-TV value chain is a rapidly developing high-technology network of 'bottlenecks'; BSkyB is the vertically integrated dominant satellite programmer; and the potential for abuse of that dominance is considerable as alleged by cable system complainants. In contrast to the press and terrestrial TV, both of which are provided with explicit statutory structural safeguards in the public interest under the Fair Trading Act 1973 (ss.58-62) and Broadcasting Act 1996 (Sch.2), analogue pay-TV is subject only to general competition law. Britain's weak competition regime is long overdue for reform (Prosser 1996). Given BSkyB's much-delayed plan to launch digital pay-TV in May 1998, and the plan to launch digital terrestrial TV by the final quarter of 1998, the Director-General's promise to 'continue to take a keen interest' in analogue satellite is something of an empty letter.

The OFT identified five essential elements in the vertical value chain: control of intellectual property (i.e. programming), transmission capacity, encryption, subscriber management, and channel wholesaling and retailing. A sixth in the case of digital is consumer system navigation, encompassing Electronic Programme Guides (EPGs) and Application Programme Interfaces (APIs), which can be compared to WordPerfect software and Windows operating systems respectively on personal computers (see Wintel s.15). Digital TV decoders require these navigation aids due to the increased volume of programming permitted by digital compression.

The OFT report raised questions of jurisdictional overlap, of regulation of hybrid communications technologies, and of the effectiveness of behavioural as opposed to structural regulation. The Director General of Fair Trading was obliged to refer contractual arbitration to the Restrictive Trades Practices Court, transmission dominance to DG IV (as BSkyB transmits via Luxembourg's Astra satellite), and retail channel bundling to the ITC (ITC, 1996). While the OFT considered subscriber management a potentially competitive market, and discovered 'no evidence of abuse' in analogue CAS, digital CAS jurisdiction is now Oftel's responsibility. EPGs and APIs will also be governed by rules laid down by Oftel, with the aid of ITC. The competition regime for digital pay-TV has been substantially tightened compared to that for analogue, driven by Directive 95/47EC rather than domestic political action (SI 1996). The resulting victory for Oftel in the turf battle with ITC would be expected to result in an emphasis on behavioural regulation of CAS rather than structural regulation.

11. UK: Regulation of Programme Bundling

As was seen in U.S. vs Primestar Partners, compulsory licensing in the US market enforced by competition authorities stymied the possibility of structural attempts to foreclose markets. Compulsory licensing, or the unbundling of premium and basic channels for wholesale on an individual basis, was partially achieved by the OFT (see OFT Chapter 5 and Appendices G,J,K). BSkyB undertook to stop its practice of 'full line forcing', requiring channels to be transmitted to all cable households in a franchise. ITC is still to report on DTH channel bundling, but BSkyB has undertaken not to bundle third party premium channels with its own in future (Kon 1996, pp.16-20). The ITC concluded its second consultation period on 30 September 1997, though the ITC Chief Executive has speculated (Broadcast 12 September 1997 at p.1) on the possibility of rate regulation of unbundled premium channels. The immediate concern regarding the bundling of Disney Channel with Sky Movies was removed in the parties' agreement to terminate this arrangement.

Other channels, such as BBC News 24 and L!ve TV, are also under investigation. The former followed BSkyB allegations of predatory pricing by the BBC and abuse of its Licence and Charter. BBC News 24 will be given free to cable viewers, jeopardising Sky News carriage in over 1.5 million cable homes, a tactic endorsed by the Secretary of State for the Media on 9 October 1997 (FT 1997b). BSkyB has declined to apply for leave to judicially review that decision. In the latter case, L!ve TV alleged that its channel was not offered to subscribers who contracted with CableTel (a cable operator) for telephony, despite the inclusion of four other 'free' channels. L!ve argued that this contravened the contractual requirement that CableTel offer its channel free to all cable television subscribers. In court, CableTel undertook to make transparent its commitment to separate telephony and television charges: in practice, this involved charging one penny for the four channels (FT 1997c). For L!ve TV it was, at best, a moral victory. It illustrates the thesis that programmers and distributors have conflicting goals, which in imperfect markets require swift and effective intervention by regulators or courts.

12. European Commission: Application of Statutory Essential Facilities

DG XIII of the Commission has attempted to provide a minimal competitive framework for European pay-TV provision. The more transparent options are competition law, and an industry-specific duty to provide access to essential facilities, enforced by either competition authorities or a specific communications regulator. The latter option would entail compulsory licensing with penalties for refusal to deal, and fair, reasonable and non-discriminatory access for third parties to 'bottleneck' facilities. It is the approach adopted by the Council of Ministers in Directive 95/47/EC, a European adaptation of the US 1992 Cable Act. The European Parliament attempted to amend the Directive to mandate a common CAS interface in pay-TV markets, in recognition of the lesser scale economies in European linguistic markets compared with the monolingual and continental North American market. The UK government, with support from Germany and proprietary DTH satellite operators, notably the UK-based BSkyB, German Kirch and French Canal , vetoed this version of the 1995 Directive.

Despite this satellite victory, the market dominant national telcos, which generally own the cable TV networks, have resisted DTH attempts to charge monopoly wholesale prices from their vertically integrated satellite operations. DTH actors have secured rights to most major sports programming in their markets, but lack access to retail customers without PTT CAS access. DTH operators have attempted to circumvent the Cable TV Directive provisions, which enables cable TV operators to control subscriber access through CAS. DTH satellite operators reach customers directly through dish sales, justifying this duplication of delivery systems by accusing cable systems of marketing incompetence and abusive conduct.

A possible solution is offered in the Netherlands. Article 69 of the Netherlands Media Law of 1996 implements Directive 95/47/EC, by requiring 'transparent, reasonable and honest' access for satellite programmers to cable networks (FT 1996). This was accompanied by government action to curb abusive cable conduct through structural market reform. Annemarie Jirritsma, Dutch Minister of Transport and Public Works, forced KPN, the PTT, to divest its controlling interest in Netherlands' largest cable network, Casema (Dellebeke 1997a, 1997b). The German Minister of Economic Affairs, the Bundesrat (Upper House) and the Bundeskartellamt (Competition Authority) have now called for Deutsche Telekom's cable network divestiture (FT 1997). Jirritsma recommended that the Commission adopt this structural separation policy on a European scale in a letter to DG IV Commissioner van Miert of 29 January 1997. Van Miert had attempted to do just that (EC 1994, FT 1994) during negotiations over the Cable TV Directive (95/51/EC), but was over-ruled by intense lobbying by the dominant PTT-telcos, supported by their governments. There are thus competing Directives shaped by regulatory capture: the Digital TV Standards Directive (95/47/EC) which was influenced by satellite operators, and the Cable TV Directive (95/47/EC), which was driven by cable-owning PTTs. The single European market in digital pay-TV was seriously structurally flawed from the outset.

13. Third Case Study: Structural Regulation of European Monopolists

DG IV judged several pay-TV joint ventures flagrantly anti-competitive under the Merger Regulation (EC 1990) in 1994-5, but has generally restricted itself to monitoring of national regulatory abuses. It has recently authorised several concentrations: Holland Media Groep - HMG (1996), CLT-Bertelsmann (1996), Nordic Satellite Distribution (1996), Canal /NetHold (1997). If a trend exists, it is towards a more liberal interpretation of the televisual market, over the period 1994-7. Policy towards the formation by analogue monopolists of joint ventures to exploit digital markets is dynamic and politically-driven. It is contended that pay-TV merger regulation may become a hostage to fortune in a wider liberalised communications agenda.

The tension between European competition policy and national public policy is illustrated in the award of UK digital terrestrial television licences to British Digital Broadcasting (BDB), subject to the removal of BSkyB membership in the consortium. The process was characterised by the interventin of the opacity and television regulator (ITC) in the public interest Telecoms regulator Oftel publicly recommended an entirely different, transparent competition-based solution. Publicity for the Oftel submission was seen as implicitly critical of the ITC DG IV is investigating the joint venture for evidence of foreclosure of the digital terrestrial market. DG IV policy may become apparent in its treatment of BSkyB and British Telecom involvement in the British Interactive Broadcasting (BIB) consortium. The DG IV Merger Task Force decisions regarding BIB and BDB are anticipated in November 1997. Pending and previous cases are represented in Table 2.

Value Chain

BSkyB -1995-6 (approved)
MSG -1994


MSG 2-1997




BIB -1997


Rights Holders
Premiership to RTPC
Kirch/ UFA rights libraries


CLT rights libraries



Mediaset/ Cecchi Gori/ Canal 'Grand Alliance'

Undertakings on bundling
Satellite Transmission
Referred to DG IV

Accounting separation
Telekom (cable)

Premiere (terrestrial)

markets monopolised

Telekom (cable)

Kirch (satellite)

Kirch/UFA (terrestrial)

markets all monopolised

No full-line forcing


Potential foreclosure of future markets
Potential foreclosure of future markets
Potential foreclosure of future markets
BSkyB/ BT/ Matsushita/ Midland Bank

Table 2: Concentrative Mergers Vetoed Compared to BSkyB

The BIB combination of a dominant telco with a dominant pay-TV actor is a more egregious concentration, than that in BDB, of two embryonic pay-TV actors. The BIB decision may provide a precedent for approval of an even more concentrated 'MSG 2'[6] and a similar telco-pay-TV concentration in Italy[7]. It was on this basis that the original German MSG consortium (see Table 2) was rejected in 1994. The failure of German satellite TV to secure a market, a pattern repeated in Italy (Telepiu) and Spain (Canal in a joint venture) is presented as evidence of the necessity for such concentrations. Van Miert concluded in 1994 that the flaw in the value chain lay in telcos' dominance of cable systems, leading to abusive conduct. There is little in the present analysis to challenge this interpretation. National governments frustrated van Miert in 1994 due to the reduced privatisation receipts resulting from breaching the cable-telco-PTT monopoly. As privatisation is still only partial in the major markets (Spain, France, Italy, Holland), the Council of Ministers is likely to continue its resistance to structural separation on financial rather than public policy grounds. Member state opposition to any threat to privatisation receipts is increased by the dramatic revenue implications of entry into Economic and Monetary Union.

Convergent Decisions Group (1996: 45-46) estimates that Germany, France and the UK will account for over 60 per cent of all European digital households in the foreseeable future. While the French digital pay-TV market is relatively competitive between platforms, even boasting competition within a platform in digital satellite, the UK is dominated by the vertically integrated BSkyB. In the German market, there is an impasse between dominant programme provision via satellite (Kirch through DF1) and Deutsche Telekom's dominance in cable carriage (Media Policy Review 1994, FT 1997a).In France, competition in the satellite market is the direct result of both competition between telecoms and cable operators and the sharing of a common CAS interface and transmission facilities (Hughes 1997).

Continental Europe's largest satellite operators, Canal and Kirch, are in dispute with recently privatised cable-PTTs in Germany, Holland and Spain. In Spain and Italy, the attempts by Telefonica (1996) and Canal to foreclose competition in cable systems,[8] and the government's preference for a mandatory common interface to frustrate DST rights holders,[9] have been stymied by the Commission under Directive EC/47/95. The Spanish government solution has been to adopt a prohibitive structural approach to share ownership in pay-TV ventures, a decision justified on the public policy ground of pluralism, an issue which is currently the sole competence of member states. This apparent circumvention of Directive 95/47EC is currently the subject of negotiation between the Spanish government and DG XIII.

14. Europe: Prospects for Digital Pay-TV Regulation

Reform of UK and EU competition regulation must be seen within the wider competitiveness debate. The UK Government is committed to reform of UK competition law , though it must be noted that current proposals for reform of both UK and European competition regulation have been mooted for several decades (Pratt 1994, Whish 1993: p.viii). The Inter-Governmental Conference rejected the Commission's proposal to establish an independent competition agency in the Treaty of Amsterdam (van Miert 1996, Ehlermann 1995). Structural regulation in the Media Pluralism draft directive is still to be discussed by the College of Commissioners (Beltrame 1996, Hitchens 1994).

DG IV will in 1998 complete its review of states' behavioural regulation of pay-TV through Directive 95/47/EC in 1998[10]. Accounting separation, the essential facilities doctrine and other tools of utility regulation employed in the Directive provide some reassurance for the public interest. The competence of national competition authorities to control abuse in the pay-TV industry is yet to be proved. As has been seen, regulators and markets have interacted to produce diverse, largely unsatisfactory and often contradictory outcomes. DG IV could recommend structural separation of programming from carriage, thus allowing competition in both upstream and downstream markets, to the benefit of industry (Chemla 1996, Rey and Tirole 1996), the consumer and citizen, and external competitiveness, not least with the US[11]. DG XIII is resistant to such strict regulation.

15. International Competitveness: Wintelism Standards and Global Markets

As a counterforce to these apparent reregulatory manoeuvres, 'Wintelism', a concept embracing globalisation and rapid technological change, has been applied to the international competitiveness debate. Wintelism (from 'Windows' and 'Intel', Borrus and Zysman 1996) describes the process whereby a component or software standards dynamically evolve into the essential facility or 'gatekeeper' in the value chain of communications products and other high-technology goods. Apologists claim that such Wintels equally dynamically dissolve.[12]

US anti-trust authorities conclude that the US will be able to set de facto world standards in network communications products, a process which it wishes to encourage. Carl Shapiro (1996: p.5) characterises these markets as 'open-but-owned', stating that 'vertical cooperation raises antitrust dangers only when it contains an element of exclusivity' (also Biggio 1996). Rapid technological progress and international competition is postulated to encourage innovation in multinationals under the protection of home states, to the benefit of both (Fidler 1996, Lloyd and Sampson 1995). As the Bangemann Report states: 'The Group recommends that the application of competition rules should reflect the reality of the newly emerging global markets and the speed of change in the environment.'

Broadcast on 11 April 1997 reported on the attempt[13] by Microsoft, Intel and Compaq to set PC-dominated standards for digital TV, a watershed in the convergence of computing and telecoms with TV. Microsoft's intention to make its software (Page 1996) the basis of a global digital TV standard is an expression of this trade realpolitik.[14] Similarly, European politicians[15] champion the adoption of European standards, such as the GSM mobile telephony standard, and question the adoption of American 'Information Society' standards.

16. Conclusion

Wintelism is especially relevant to European digital pay-TV, in that gatekeeper stranglehold is particularly egregious in emerging markets. For policy-makers, the major issue is whether the market proves sufficiently dynamic to negate such Wintels. In the US, the pay-TV market is presently characterised by vigorous competition (Markey 1995), enforced by federal regulators, while European actors struggle with parochial political quarrels and asymmetrical regulation. Diversity and pluralism are often assumed to be compatible with a market-oriented competition law approach (Labour 1995).

It is acknowledged that many policy-makers treat television as part of a wider Information Society agenda (Fuller 1995, Goldberg and Verhulst 1997).Thus, liberalisation of infrastructure on an a common carrier basis forms the basis of policy. The Cable Television Resolution (EC 22 December 1994) is bracketed (Ungerer 1995) with the Satellite Communications Directive (EC 13 October 1994), and the Green Paper on Telecommunications Liberalisation (Part I) of 17 November 1994. They were all adopted within the space of ten weeks.

Just as competition between platforms most effectively fulfils the Commission's plans for telecoms liberalisation (EC 1996), the same function can be performed for pay-TV, with the safeguard of explicit public policy goals of quality and diversity. The policy failures of 1994-5, which were those of member states pursuing national financial self-interest, have thus far prevented the emergence of the competition paradigm in European communications regulation. The 1997 Green Paper will undoubtedly aim to unravel the anti-competitive conduct of national telcos. Without national commitment to reform, the European pay-TV market will fail to attain the competitive conditions which the US market and US consumers have enjoyed for four years. European competitiveness, in the race to develop digital standards in navigation and software, is hampered by such laggardly regulation. The implications of such an unsupported legal framework are profoundly negative for the European economy. Effective regulation is as essential as the facilities which it would regulate.


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[1] Provisionally to be discussed by the College of Commissioners on 12 November.

[2] See Agence Europe 6 February 1997 at p.6; 10 February 1997 at p10.

[3] In Holland see Buma v. NetHold, District Court of Utrecht, 21 February 1997, KG No.04.21.90/97. IRIS 1997:3.

[4] Recent non-transport decisions include Sabena (OJ L317/47 [1988]). Temple Lang (1994) emphasises a 1981 case: IGR Salora.

[5] See also EBU/Screensport (OJ [1991]L63/32) and DG IV's annulling of US-owned UIP Pay-TV (Agence Europe 17 March 1997 at p14).

[6] Cable & Satellite Europe (1997) August at p17: 'Digital Truce in Germany'

[7] FT (1997) New Media Markets 31 July at p19: 'Italian Groups agree to unite on digital TV'

[8] Also domestic court decision: FT New Media Markets 4 July 1996: Court tells Telefonica to close cable operations.

[9] Spain backs down over encryption services Broadcast 18 April 1997 at p13.

[10] See Herbert Ungerer The Current Competitive Issues at Telecommunications and EC Competition Law IBC Conference, Brussels, 19 September 1996: 'How do we deal with ...the incumbent telecoms operator in the cable market?...these key questions are the subject of a major 1998 review.' (p2)

[11] Screen Digest estimates a $2billion EU trade deficit in 1996 in television programming, April 1997 at pp81-85.

[12] Traditional industry analysis has concentrated on vertically integrated assemblers, such as IBM, General Motors and General Electric, as highest value point in the chain. The danger that vertical integration would enable corporations to extract monopoly rents is partially offset by perceived benefits from the domestic consumer's subsidisation of the corporate export performance.

[13] 'Microsoft signs pact for digital TV standard' at p6.

[14] See Louise Kehoe Guardian of the gateway, interview with Bill Gates, Financial Times 11 April 1997, in which he claims that he will 'bootstrap' digital TV.

[15] Konsortium ECR 900 (Alcatel, Nokia, AEG). See Temple Lang (1994).

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