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Published on March 19, 2008

Author: Carmina

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What Regulation for Internet TV?:  What Regulation for Internet TV? Eli Noam Professor of Finance and Economics Director, Columbia Institute for Tele-Information IDATE DigiWorld 2006 Conference Montpellier, November16, 2006 Slide2:  Thanks. Great event. Last year, I was stuck in Tunis at the ITU information summit But I contributed a paper to Idate about the difference of countries with a 2.x broadband infrastructure to those with a 1.x broadband infrastrucutre. Today, I will speak about television over that infrastructure, and how it will be treated by regulators. Slide3:  It is in the nature of a very full 3 days conference that by the 3rd day, much has alreadey been said by many. And so, I will suppress much of the data and picutres that I have to show you, and all the financial aspects I would like to ttalk about, and instead turn to analysis and interpretation Slide4:  We have heard here about the various FTTx efforts FTTxyz:  FTTxyz Slide6:  We have heard here about the various content strategies Content :  Content Slide8:  We have heard about the variious BB penetrations Slide10:  And so, as TV over the Internet is becoming a reality, the question shifts from technology and even economics to that of media policy. Internet TV:  Internet TV (http://cc.uoregon.edu/iptv/) Slide12:  It is much more fun to talk about the opprotunities. The content models. The business strategies. But now , in this session, we must also talk about the constraints. About regulation. Regulation:  Regulation What will the regulation of TV over the internet look like in the future?:  What will the regulation of TV over the internet look like in the future? Slide15:  It is an issue that people in Brussels, Washington, and elswhere have been debating. And it shows, to put an optimistic and positive spin on this, theat the debate is shifting from the “whether” and “when” of broadband-delivered mass meida to the “how” There are at least 4 Options for the Regulation of Internet-TV:  There are at least 4 Options for the Regulation of Internet-TV 1. Internet-centric (zero) 2.TV-centric (applications,edge) 3. “Layers” approach (mixed) 4. Telecom-centric (core) Slide17:  The first option is that hoped for in the past. The second option is the one now persued in Brussels The third option is the one popular with the few academics who think about it But it is the last option, I will argue , that will be the future, for better or for worse Slide18:  Telecom regulation will become, for better or worse, a foundation of media regulation, instead of the hoped-for laissez-faire system. Slide19:  The first option is that of internet-style regulation. Which really means, no regulation. Un-regulation. And that was certainly the expectation. 1st Option: No Regulation:  1st Option: No Regulation Slide21:  When print emerged 550 years ago, it was at first heavily controlled. But eventually, it became pretty much free, at least in free countries. Slide22:  And this trajectory of print towards substantial deregulation raised the expectations that, in time, television would follow a similar path When the scarcity of spectrum would cease to be a bottleneck, when any and all could become providers of TV, then TV regulation would wither away, would disappear Slide23:  This withering away would happen when television would migrate to a delivery over the internet. Slide24:  But this is unlikely for two reasons The first is that the internet community itself has turned away from the nottion of deregulation 1. The Internet Community is turning away from libertarianism:  1. The Internet Community is turning away from libertarianism Slide26:  Ten years ago, the early spokes-persons of the internet issued a “manifesto of internet liberties”, in which they proclaimed, “Government, leave us alone, we did not call you, we don’t need you.” And this libertarianism is certainly the prevailing ideology. And its economic and civil liberties message is certainly uplifting. But as often, one should not listen to what people say, but what they do. And here, the internet community is moving towards a pro-regulation, pro-intervention perspective Slide27:  You could see that in tunis last year. You could see this in athens this month And you can see this in america in the debate over net-neutrality. [I will speak about it later] When the fears are those of the powers of the American government, or of AT&T, or of Disney – some people think its all the same thing– then Internet libertarians are often ready to look for protective regulation. Slide28:  Hence, for all practical purposes, the libertarian flag has changed hands: today, the incumbents wave it over their market power, while the internet community seeks an increased role for government, while still mouthing the after-dinner speech slogans of minimal government. Slide29:  *****EN find graph showing ‘societal goals” Slide30:  The second reason why a libertarianism will not prevail in internet tv is that it the regulation of tv is not really based on scarcity of spectrum. That was just the excuse. Slide31:  TV spectrum was scarce because governments chose to make it scarce, by allocating frequencies only grudgingly. Slide32:  But if scarcity was not at the heart of television regulation, what was? Each society has its concerns, problems, issues, traditions, priorities. Americans worry about sex. Europeans worry about violence. Germans are sensitive about racist speech. Canada worries about its national identity. China worries about party control. Italy about Berlusconi control. Saudi Arabia about women driving cars on TV. Malaysians are concerned with ethnic diversity. Everybody worries about Rupert Murdoch and bill Gates. Slide33:  The main purpose of media regulation is to advance or protect such goals. None of these objectives will vanish, just because television signals travel over digital pipes rather than analog airwaves. It’s not just about bottlenecks. Some of these concerns might decline, but others will increase, and new ones will emerge. It is unlikely that societies will simply give up on their societal priorities just because the video information now takes a different path or is encoded in different way. Instead, they will simply adjust the tools to the new environment. Slide35:  www.zultrax.com/Images/about_p2p_handshake.jpg Interconnectivity Slide36:  So it is unlikely that societies will leave tv alone, whether analog, digital, or IP, or whether over the air, over cable, or over IP networks. Slide37:  This then gets us to the second approach, the tv-centric approach for IPTV regulation. And this is the approach one can see coming from Brussles 2nd Option: the TV-centric Approach to Internet Regulation:  2nd Option: the TV-centric Approach to Internet Regulation Source: www.wasp-factory.com/ Slide39:  Protection of children Protection from hate speech Protection of national production and national culture Right of reply Things like that. All aimed only at “linear” video, at longer video, at provider-edited video Slide40:  You can see that TV-centric approach also in the recent decision in germany by the laender to charge a broadcasting license fee now also on all computers and mobile phones that can receive tv programss – in other words, parctaically all computers and cellphones– whether they are used for public tv – or any tv--or not, and whether they are in homes or in offices. Slide41:  And you can see the TV-centric approach in the approach of Korea, where tv broadcaster licenses are required to become a content provider for internet tv. Except that nobody gets a license, so far. Slide42:  Even in the UK, Shaun Woodworth, the minsiter for the creative industries ----in america, we do not have a minister for th creative industries. The only exception is the agency to congtrol fiancial accountanting statements — [And tessa Jowell, minister fr culture, media and sports] Have pronounced that there ought to be a regulation of “full length” programs, just not of shorter clips. [Doesn’t sound very practical to me. One would simply divide a longer program into little episodes.] Slide43:  all this is the product of the second state of thinking, the second paradigm, after the internet libertarialn model, which is that traditional tv regulation must spread and expand to cover internet tv to maintian balance and fairness and a level playing field. Slide44:  But this, too, will be temporary approach. Extending the braodcast model to new styles of tv will not work. It is impractical. How would one distinguish one sytle of tv from another? You try to write those rules. It is unenforceable. How would one enforce content rules? Would one have to license providers? It may well be illegal. under the free speech laws of some co ntries, at least those of the US, one cannot simply regulate content media for broader social goals, if there is no reason such as scarcity. It is contradictory. It is restrcitive to international flows of information. How would one prevent off-shore content providers operating under the rules of other countries? It is Impractical:  It is Impractical It is impractical:  It is impractical It is hard to enforce:  It is hard to enforce It violates Free Speech neutrality principles:  It violates Free Speech neutrality principles It is contradictory:  It is contradictory Slide50:  It cannot deal with other countries Slide51:  It is inefficient. If one wants to raise money for public service tlevision – and there is nothing wrong with as a goal– why collect a monthly fee from the owners of every office PC or cellphone unless he can show that he already pays at home for TV? Or that the PC has no modem? Or that the PC has not broken down? It seems much easier instead to levy a tax on braodband connectivity, not on the device per month. Slide52:  It is xxxx. The same goes for the support of local film production. There must be much better ways to do this than through TV style content quotas over the internet. How would one define, count, and measure this? Slide53:  Jean-Luc Godard Francois Truffaut http://www.worldroots.com/brigitte/royal/royal17d.htm http://www.sinewaves.it/truffaut.htm Luis Bunuel http://www.creighton.edu/langlab/classes/spn31299/christina/bunuel.htm Slide54:  It is unnecessary. When it comes to children or racist speech, most countries have general media laws that apply to magazines and film and whatever. And for libel and obscenity. Why isnt this enough to cover internet tv, too? Why use broadcst laws? The same goes for advertsing laws. Slide55:  It is impossible. Traditional tv regulation aims at protecting certain worhty goals, such as “localism”, ‘ fairness”; “pluarilism”; and “diversity”. It does so through conditions that attach to the braodcast licenses. How exactly would one do that for internet tv that comes from numerous sources, some local, some global, some responsible, some promotional, and some crazy? Slide56:  So the TV centric approach, which means regulating the edge, the content provider directly, or the owner of the edge device like a tv set, a PC, or cellphone, seems to me to be a case of a bad idea whose time has come. Regulating the edge just isnt very practical. The only main reasons for this tv-centric approach is that it is politically easier to institute. And it has the support of the public braodcasters. So some of this will happen. But the impracticalitiies will in time sink this TV-centric approach. The 3rd Option for Internet TV Regulation: The “layer” approach:  The 3rd Option for Internet TV Regulation: The “layer” approach Slide58:  The layer approach is beloved by technologists. It is well-informed and it sounds progressive. But it is really a tv-centric approach inside a lot of techno-speak. It talks about the ISO hieracrchy and trasnport layers and protocol layers and presentation layers and applications layers. It wants to regulate them separately . So you would have one set of rules for layer 3 and another set of rules for layer 7. And you would be consistent about regulations within a layer. Slide59:  All this techno-talk tends to intimidate a lot of people who therefore tend to nod their heads and go along. But it is really not practical either. First, it doesn’t really answer the problem, of what kind of regulation there should be on internet tv. It just says that it would be the same for all content. So all internet video content could still be regulated according to the traditional tv rules, expanded to all video. Or, one would differentiate between linear and non linera, or short or long, or inteactive or one way. . but then it wouldn’t be a consistent layer regulation, right? And we havent even reached newwpapers and other print media Different Services May Have To Be Treated Differently:  Different Services May Have To Be Treated Differently Slide62:  So much for horizonatal symmetry. And now, for the vertical separation. The problem with the layer-approach is that companies and operations cross layers. The neat separation exists only in theory. And the more complex a service, the more layers it is likely to cross. So regulations that are layer-specific would run right through firms and operations. Slide63:  There is a lot of history here. And it all points to the need, in such sitautions, for full separations if one wants to regulate different parts of the same firm and same operations in different ways. And if hispotry is a guide, these seaprations are not efficient, and usually do not last long. One can learn from history:  One can learn from history xxxxxxxxxxxxxxxxxxxxxxxxx Slide65:  And firms would try to evade them by shifting activities to other layers. For example, suppose that one layer has a regulated price. Then one would raise the price at a lower layer. Or suppose that on layer cannot engage in discrimination of others. Then one would shift discrimination to another layer. Slide66:  But all these upper layers of content and applications also have one thing in common: they all use lower levels. Slide67:  And the clear implication therefore is that instead of messing around with the upper layers, one turns to the lower layers. Because if one controls them, one can controls the rest. On a road, you can try to control the speed of driving by road signs and speed limits and flashing lights and speeding tickets and penalty points on drivers licenses design regulations on automobiles. That’s regulating the edge. But the simplest and most effective way I have encountred are simple speed bumps on the road itslef. That’s regulating the core. Slide68:  And this brings us to the 4th approach for internet tv regulation, the telecom-centric approach. The 4th Option for Internet-TV Regulation: Telecom-centric:  The 4th Option for Internet-TV Regulation: Telecom-centric Slide70:  One of the principles of regulatory enforcement is that it most efficient and easiest to regulate the least mobile and elastic elements, such as land and physical goods. Infrastructure cannot go away, cannot go offshore, cannot disappear. Yet everything that reaches the user has to go over some form of insfrastructure Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile Slide72:  A second principle is that it easier to regulate the element with the fewest providers. It’s easier to enforce. And the number of infrastructure providers is small because of the existence of economies of scale on the supply side and of network effects on the demand side Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants Slide74:  The third reason is related, that the small number of infrastructure providers means that they have market power Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants 3. Market power Slide76:  The example now is net-neutrality. Slide77:  Six bills pending on net-neutrality Slide78:  Internet advocates seek governmental protections from the powers of the telecom and cable companies’ powers over pricing, quality, discrimination, access, content, favoritism for own subsidiaries, etc. In other context, they seek an opening of incumbent networks through unbundled network elements and re-bundled platforms, line sharing of frequencies over local networks, etc. Slide79:  Barely a decade ago, the internet’s pioneers declared in their 1994 Charter for Internet Liberties: “Government, leave us alone, we did not call you, we don’t need you.” Today, the internet community is seeking, under the heading of net neutrality, the policy that dares not speak its name--telecom common carrier regulation for broadband.   Slide80:  And this is not surprising. Telecom regulation, though derided as “legacy”, has evolved for a reason. If regulate we must, then telecom regulation is really quite a sophisticated tool relative to regulation of other industries. Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants 3. Market power 4. Existing sophisticated regulatory instruments Legacy Regulation or Sophisticated Instrument?:  www.corbis.com Legacy Regulation or Sophisticated Instrument? Slide83:  Take the concept of forward looking incremental cost pricing for unbundled network elements. LIRIC. Neither aviation, pharmacological drugs, environmental controls, or rail transportation, nor electric utilities have anything that comes close in terms of economic sophistication and institutional complexity. This is not to say that it is a “better’ regulation, just a more complicated one, dealing with numerous factors, and conducted on an economic level of significant theoretical expertise. Slide84:  While broadcast regulation could be learned by an attentive student in a busy weekend, and while aviation regulation is heavy with details but feather-light on concepts, telecom is quite complicated. Even experts can be lost in explaining the relation of reciprocal compensation to access charges. Slide85:  It isof course true that any accumulated set of rules will have its share of inconsistencies and holy cows. And of course, as in any balanced system, everyone despises those aspects of the regulations in which they had to concede something. But on the whole, telecom regulation is complicated and advanced in balancing multiple objectives, as regulatory schemes go. But they are, of course, regulations, not the free market. Slide86:  Fifth, by regulating the infrastructure one can indirectly reach the edge and its applications. Make the infrastructure provider the enforcer of more general media policy goals, such as Protector of Privacy Source of revenue for productions, public TV, and for redistribution Protector from spam Blocking provider for harmful content Cyber-security Etc etc. After all, everything travels over the infrastructure Slide87:  Societal media policy goals : Content Diversity Source Diversity Balance Privacy Morality Trade National Culture Ownership diffusion Protection from defamation Consumer protection Revenue generation Truth in advertising Innovation Interoperability Coverage across geography and income Redistribution Protection of competition Protection from spam Cyber-security Redistribution Slide88:  The network is used as a kind of national cordon sanitaire. Internet TV cannot be expected to be only regular TV. Inevitably, it will be used for more controversial uses. Imagine the reaction when we face a serious influx of tele-gambling, tele-child pornographers, tele-hate speech, tele-consumer fraud. Because most of the originators of the content cannot be easily reached directly by a national government, it is likely that the responsibility to block them will become the responsibility of network operators. Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants 3. Market power 4. Existing sophisticated regulatory instruments 5. Enforcer of content restrictions Slide90:  The infrastructure provider becomes, in effect, the enforcer and tax collector It provides the source of revenues for societal goals such as program production, digital divide issues, etc. Telecom and cable networks are examples Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants 3. Market power 4. Existing sophisticated regulatory tools 5. Enforcer of content restrictions 6. Effective revenue source Slide92:  Infrastructure providers can also be reached to provide “in-kind” services, especially to achieve diversity and pluralism Allocate capacity for societally favored purposes, such as public access, or disadvantaged social groups Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants 3. Market power 4. Existing sophisticated regulatory tools 5. Enforcer of content restrictions 6. Effective revenue source 7. Source of In-kind contributions Slide94:  Eighth, the internet provides a tool for customization of everything, including the customization of regulation. Internet regulation actually becomes a more powerful regulatory tool. Slide95:  Contrary to the conventional notion that a bit is a bit, internet bits come in identifiable packets with address and sender included. And once information is identifiable, it becomes differentiable, and hence regulatable. One can regulate packetized and identified information in a granular fashion. Preferential treatment, pricing, must-carry become possible with identification. Slide96:  Cable TV has been under such rules for a long time already. It is now being pushed also to a teleocm-style unbundling of its channel offerings. This is known as a la carte pricing. And it is something being pushed in washington by Senator John Mc Cain, and by FCC chairman Kevin Martin, who has been good in identifying the next president of the united states. Senator John McCain FCC Chairman Kevin Martin:  Senator John McCain FCC Chairman Kevin Martin www.myspace.com Factors Leading to Infrastructure as the Nexus for TV Regulation:  Factors Leading to Infrastructure as the Nexus for TV Regulation 1. Least mobile 2. Fewest participants 3. Market power 4. Existing sophisticated regulatory tools 5. Enforcer of content restrictions 6. Effective revenue source 7. Source of In-kind contributions 8. Customization of regulation Slide99:  These reasons, in combination, create powerful forces in the direction of a regulation of internet TV through the network core, much more than through the content and applications providers Slide100:  And perhaps I should emphasize again that this is not a recommendation or a preference on my part, but an analysis of what is likely to happen, whether we like it or not. But if you follow the analysis, it leads to a conclusion of a shifting in the approach to internet tv, over time: Shifting Paradigms for the Regulation of IPTV:  Shifting Paradigms for the Regulation of IPTV Internet  TV  Layer  Telecom Focus of IPTV Regulation:  Focus of IPTV Regulation No Reg  Edge  Edge & Core  Mostly Core Life Cycle of TV Regulation Models?:  Life Cycle of TV Regulation Models? Internet/ unregulation TV/ Content Layer/Combination Telecom/ Common Carrier/Infrastructure xxxxxxxx xxxxxxx xxxxxxxx xxxxxxxxxxxxx Slide104:  And while this might be thought of as just affecting tv over the internet, it really is much more. For a time, internet distribution of tv will be only supplemental; but in time, with broadband usage spreading and becoming ultrabroadband, it will become the major way of distributing video materials Slide105:  As the internet becomes the main platform for most media uses, the regulatory rules for TV over the internet become the rules for much of the media system as a whole. And with the regulatory rules for the internet becoming those of telecom, it follows that the telecom rules become the rules of television, too. Slide106:  I reach the conclusion without any pleasure, and with some concern But the conclusion is that television regulation will become like telecom regulation. End of Presentation:  End of Presentation Thank you noam@columbia.edu

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