Summary

- Preface
- Review of Convergence Components

- Definition of Convergence
- Four Levels of Convergence
     • Technologies and Networks
     • Uses
     • Services
     • Industry

- Barriers to Convergence
- Impact of Convergence on the Regulatory Framework
- Conclusion

Preface

- The French Telecommunications Regulatory Authority, hereinafter referred to as "the Authority", is paying close attention to technological change and, in conjunction with the government, is responsible for the harmonious development of the market in an environment that obeys competition rules. It therefore believes to be directly concerned by the discussion opened by this Green Paper, which is why it is seeking to play an active role.

- Its response has been drawn up in close collaboration with various professionals, through a certain number of meetings with the College, as well as the extraordinary joint meeting of the two telecommunications advisory commissions.

- Since 1984, the European Commission has been following the supposed convergence between the telecommunications, media and IT sectors. The Green Paper on the convergence of these three sectors is thus the natural extension of a process initially launched 15 years ago. The question posed is whether or not it is relevant to maintain different regulatory systems according to the level of convergence between the three sectors.

- The issue of convergence is not a new one, but consideration of it today is no less important in that Europe will be unable to deal with "convergence" which is taking place and which it cannot fully control. Moreover, this discussion is directly linked to the debate concerning the "Information Society".

Review of Convergence Components

Definition of Convergence

- Initial consideration of the phenomenon of convergence enables its semantic importance to be judged. What are we actually discussing?

- The Green Paper defines convergence as being "the ability of different network platforms to carry essentially similar kinds of services". For example, this may be voice telephony on the public switched telephone network (PSTN), on cable or on Internet, or else videoconferencing on the integrated services digital network (ISDN), cable or the Internet. On the other hand, convergence may have been defined as "the ability of certain platforms to carry different services", for example cable as the conduit for television, telephone and Internet, or microwaves for voice telephony, television and Internet.

- The term "platform" poses a semantic problem, since the Green Paper does not provide a definition: is it the network, network equipment (for example switches), terminals or a specific part of the network (the satellite for example)? It is thus a delicate matter to draw conclusions in terms of "convergence" without first having defined what we mean by "platform". This is why the present document gives preference to the concept of network.

- Should we speak of "convergence" - action leading to the same result, of tending towards a common goal - or of "synergy" - the co-ordinated action of several organs, the association of several factors resulting in a single action, with a single effect; or else merely a common denominator provided by technology: dialogue protocols (OSI model, TCP/IP protocol and so on), software, network digitisation, multiplexing, etc.?

- The notion of market is also one requiring detailed attention, since the reality of convergence in the market is a major question to which the Authority is seeking a response. Changes in this market may be understood by distinguishing between and comparing the services offered by the companies and what corresponds to real demand by consumers.

Four Levels of Convergence

•Technologies and Networks

The generalisation of digital networks is not sufficient in itself to give rise to convergence

- The Green Paper correctly highlights the importance of changes occurring as a result of network digitisation and of advanced compression and transmission techniques. Nonetheless, the commonality of these networks and especially their integration into a single "platform" still remains to be seen. In particular, the current state of techniques is such that advanced services are not actually available throughout France. Indeed, what we are witnessing is an upgrading of existing networks towards higher performance in terms of bandwidth and the development of new supports (terrestrial or satellite digital broadcasting), without this profoundly affecting the actual nature of these networks, i.e. their specialisation in one of the sectors in question.

From a technological standpoint, digitisation of networks effectively leads to a certain comparability between the characteristics of broadcasting and telecommunications infrastructures. This is not sufficient, however, to systematically unify networks and integrate them into a single platform. Networks may indeed be becoming polyvalent, but this does not mean they are convergent.

Internet does not equal convergence

The Green Paper gives great importance to the Internet phenomenon (TCP/IP). This may give the illusion of a single network, since the Internet enables the federation of different types of networks, all accepting the common TCP/IP language. In spite of this, convergence of networks can be concluded only if the Internet is the one and only mode of transmission of the content from the different sectors involved (broadcasting, telecommunications, data), which is far from being the case.

The Internet protocol already has its limitations and it is doubtful that it will be selected for certain services in the light of technologies with much higher performance levels, e.g. satellite or terrestrial digital TV broadcasting.

The new digital technologies are not federated

- The integration of communication networks is not a universal phenomenon. The original specificities of all the components of these networks still subsist to a considerable degree. This is particularly true for Asynchronous Transfer Mode (ATM). ATM technology was in fact not largely used on operators' networks when it first appeared, the reason being that although its technical principles theoretically enable it to federate specialised networks into a single network, its deployment costs remain high with reference to the potential market. In practice, the cautious implementation of ATM by operators involves only their network cores, and they use it primarily to group traffic from their specialised networks onto a means of transport that optimises the use of the bandwidth. What is true for ATM also holds for ISDN, ADSL (Asymmetric Digital Subscriber Line) and LMDS (Local Multipoint Distribution Services) in particular.

- The characteristics of telecommunications networks seem to tend towards complementarity and heterogeneity of different systems and it is currently difficult to predict the chances of success for a given technology. It is even more difficult to affirm that the convergence of networks is inevitable. On the one hand, technological limits do indeed exist concerning its expansion, for example the width of the bandwidth according to the information to be transmitted. Secondly, the actual choices of the major professionals in the sectors concerned seem to favour specific solutions for specific types of services.

- Finally, it may be noted that the development of competition in the field of telecommunications will, at least initially, lead to a wide range of solutions and will create diversity in terms of networks.

•Uses: new rather than "convergent" uses

- Observing the telecommunications market reveals that the definition of convergence given by the Green Paper is very general and as a result must be further defined in order to be a true reflection of reality. At the three levels identified by the Green Paper (technologies and networks, services and markets, industry), it is interesting to look at the second in more detail, and to distinguish between the "services" offered by companies and "uses", corresponding to effective consumer demand. The combination of the two is the only way to characterise the market.

- A study of current uses in the different sectors concerned by convergence has not shown a strong trend towards unification. There are clearly similarities, such as browsing an abundance of programmes and data, and even cases where services belonging to two different sectors can be interchanged: e-mail is replacing the telephone call and above all the fax, or specialised Internet sites (for example sports) are competing with television programmes.

- In the vast majority of cases, however, each of the sectors remains the only means of responding to consumer needs in the field of its speciality. The fact that several users with state-of-the-art equipment can benefit from Internet image services is not proof that television is available on the Internet.

- Indeed, in most households, the television and computer are dedicated tools with specific and non-interchangeable uses, if only for reasons of comfort. Attempts to create multi-use integrated terminals have not yet met with clear-cut success. This does not prevent progress in the products offered (multimedia computer, "intelligent" television, cellular phone with Internet capacity and more), but we should not confuse the arrival of better services in each domain (interactive television, portable computer with Internet, etc.) with convergence, as this still remains highly theoretical.

- The panoply of services proposed is in reality reflected by new uses, but which are not all that different from pre-existing ones. Although the abundance of communications services characterising the passage to the "Information Society" has resulted in a relative proximity of uses, we have not witnessed the arrival of unique multi-application terminals, but rather a diversification of terminals that remain specialised in a given function.

• Services

One-way "convergence"

- It is still too early to affirm that the observed developments will lead to "the" convergence between broadcasting, telecommunications and IT. Products that have gone beyond the experimentation stage primarily involve only one of the aspects of convergence, i.e. telecommunications services on audiovisual supports. This involves providing Internet access on cable and soon on broadband satellites; in the longer term the development of e-commerce on these supports. In this context, cable will undoubtedly be the vector for the penetration of telecommunications services into households, as a result of its existing bandwidth capacities; this is also being encouraged by public authorities (along with radio transmission technologies, cable is one possibility of introducing competition on the local loop).

- The conveyance of audiovisual services over telecommunications networks, on the other hand, is encountering barriers in terms of use and does not constitute a priority strategy for market professionals. This is even more true in that these services are currently not reaching the degree of quality that would make them competitive with conventional television.

Diversified service "packages" rather than "new" services

- By offering as many telecommunications services as audiovisual services, operators in the broad sense can use various means in an attempt to approach the customer via a "one-stop shop", which reflects more a desire for added value than the appearance of "new" services.

- As a result, we are witnessing a multiplication, a diversification and a reciprocal enrichment of proposed services, certain of which can be carryed via any means and regardless of the type of content.

- This explosion of new services is in many cases the fruit of start-up companies proficient in combining related technologies; Europe must be able to create the environment favourable to the birth and development of these innovative companies.

• Industry

Disparity between sectors

- A study of the ten leading companies in each of the sectors considered has shown a substantial domination by those operating in the telecommunications and IT sectors.

Low diversification levels

- Analysis of the strategies of industrial professionals and recent merger and alliance operations between groups from different sectors (broadcasting, telecommunications, IT) shows that they most often occur within each sector (search for a critical size or vertical integration), and that diversification of groups has neither the same magnitude nor the same nature in each sector concerned. The strategy of reorientation towards core professions is often observed, particularly in telecommunications.

Strategic diversification rather than "convergence"

- In spite of appearances, the declared "convergence" among the different sectors would seem to be motivated more by preoccupations for more effective management than by irresistible market forces. An increasing number of diversified offers effectively ensure economies of scale, the sharing and effective use of equipment, and the loyalty of customers by proposing subscriptions to different services.

- It is has also been noted that when groups are active in several domains, they are generally vertical offshoots and so expected synergies only rarely lead to the offer of "convergent" products. The Green Paper, on the other hand, made the claimed vertical integration one of the conditions for the appearance of convergence.

- It should also be pointed out that discussions on "convergence" constitute an instrument used by companies for economies of scale and for commercial and financial synergies. Far from favouring the convergence of different core professions, this procedure aims at ensuring better control of accesses, i.e. for the end-user, since it is the companies controlling accesses, in particular by owning a network, which will be the first to benefit from the development of the new market. This is more a strategy of continued growth than a new phenomenon.

Barriers to Convergence

Highly relative "regulatory barriers"

- All barriers to "convergence" are not regulatory, and as we have seen above, the development of new information and communication technologies is initially hampered by technical and technological specificities, by specificities of the uses, and finally by the specificities of the markets concerned.

- On this point, the Green Paper seems to evade the problem, in that it states that convergence is beneficial and that all barriers must be removed, without questioning the reasons that may justify the existence of a given regulation. Legitimate legislation, in some cases specific to a State, should remain applicable, regardless of technological progress.

The impact of regulations on the market must be defined, whilst highlighting the decisive role of competition rules

- The Green Paper underlines that regulations may constitute a barrier to convergence in terms of market access conditions, since the different sectors do not operate under the same systems. Although we may subscribe to this approach, it should be remembered that the barriers considered by the Green Paper are factors that hinder the development of the market and are not barriers to "convergence". As a result, there is the risk of confusion in the discussion. In this context, some barriers to market development (and not to convergence) should be identified and removed as such.

- In the same way as scarce resources, access to the network and particularly to the local loop in this framework are major challenges to the development of competition, and these are major concerns for the Authority. The risk involved is that operators in dominant positions able to control bottlenecks for access to consumers may emerge and even persist. In such cases, the regulator has an important role to play, and the application of adapted rules of competition will remain the best means of ensuring the harmonious development of the market.

Market uncertainties must be taken into account by a stable regulatory framework

- The lack of market maturity in the field of new information and communication technologies cannot easily be imputed to regulatory barriers. It must be said, however, that industrialists do encounter a number of "objective" barriers, in particular:

- uncertainties deriving from technological progress that affect supply,

- uncertainties related to changing uses that affect demand.

- These two types of uncertainties seem much more restrictive for an entrepreneur than uncertainties related to regulatory aspects. Consequently, this could very well result in regulations by sector rather than defining a stable framework, thus enabling uncertainties to be limited in a transitional phase.

Impact of Convergence on the Regulatory Framework

Clear and stable rules

- Stability is essential in this context. The opening of the telecommunications market to total competition is very recent. It would thus seem inappropriate to change the ground rules at this time, whereas even regulatory authorities have a major role to play in a market that is in the process of being structured.

A basic distinction: public and private communication

- Technological convergence, or rather the development of network interoperability, constitutes a major challenge to those responsible for legislating and regulating the different sectors: why should services that are similar but provided on different networks be regulated differently?

- There is no proof that the basic distinction - very marked in France - between telecommunications (private communication) and broadcasting (public communication) will be called into doubt by convergence. Indeed, only very few cases may raise doubts concerning the qualification of services, and there is always the regulator or judge to settle any contentious issue. The regulation of telecommunications services ensures secrecy of communications, whilst broadcasting is subject to content regulation, so as to protect the public interest (freedom of opinion, pluralism and protection of the individual). Analysis has shown that the existence of two different sets of regulations (private/public communication) in no way prevents certain networks from carrying these types of services at the same time.

- When considering this basic principle, the existence of a single regulator in each State would not be a streamlining factor.

Separation of service and infrastructure regulation

- The intrinsic nature of content may remain unaffected by convergence, with the distinction between private and public communication remaining valid. However, the current legal distinction between telecommunications networks and broadcasting networks based on the type of services transported will become increasingly more artificial.

- This changing outlook clearly poses the question of the unification of the regulatory framework applicable to the different networks. In this hypothesis, the Authority believes that the principles of competition should be implemented as the reference for reforms.

- The polyvalence of networks will soon be the order of the day requiring the regulation of services separate from that of infrastructures. A given service will continue to be regulated according to the legal category to which it belongs (according to the private/public communication distinction), regardless of the infrastructure used to provide it, since the network is and should remain neutral.

- The general organisation of the regulatory framework should no longer separate a service from the network that provides it. This change will lead to the more clear-cut distinction between content and conduit, since network control will be based on economic regulation.

Special Case of the Internet

- The Green Paper presents the Internet as an example of convergence, based on the belief that the same network can carry all types of information (voice, data, still or moving images), whether private or public.

- The Internet offers both audiovisual and telecommunications services, and these services could be subjected to the two types of content regulation (private/public communication) described above.

Conclusion

- "Convergence" is often used as a concept around which operators and industrialists can organise their "attack" on the market and their strategy in a more coherent manner (convergence thereby becoming an objective for these professionals). Similarly, the control of access to information and communication is becoming a major worldwide power challenge. Information and communications technologies have become a very tough competition battlefield and as a result, Europe must rise to this challenge as its future development will depend on it.

- Despite this, global convergence is only slowly materialising in terms of offers to the public, and more importantly, changes in the latter's behaviour do not appear to be significant.

- It is nevertheless the responsibility of public authorities to prepare the future and, as the European Commission desires, to encourage the rapid emergence of the "Information Society". For this purpose, it should be pointed out that the current distinction between telecommunications networks and services, and networks and broadcasting services, is tending to become less marked. If reform thus becomes necessary, its objective should be regulation that differentiates content from conduit. This will require harmonisation of the different regulations applicable to conduit.

- In terms of the services, regulation in these conditions should focus on distinctions based on their legal nature, depending on whether they belong to private communication and/or public communication. Concerning "heterogeneous" services that can be found on the Internet, they may belong to either type, depending on the use that the sender plans to make of the content.

- In conclusion, the French Telecommunications Regulatory Authority considers that the first option proposed by the European Commission, suggesting a change in existing legal structures, is best adapted to changes in the telecommunications market in France.

- Finally, it highlights the benefits of concentrating on analysing and dealing with convergence problems as they arise, for example telecommunications services over cable networks, or Internet telephony.