While the Internet revolution has brought unprecedented benefits to both business and consumers, it also poses new challenges to policymakers. This paper examines some of the questions that the emergence of the Internet -- and the convergence of media types that it enables -- pose to traditional concepts of telecommunications and media regulation. The Global Internet Project (GIP) is an international group of senior executives committed to fostering continued rapid growth of the Internet. GIP members believe that to ensure continued growth and innovation, the Internet must be kept free of unnecessary regulations that impede or inhibit its growth. The GIP calls upon governments to encourage private sector solutions to Internet policy challenges, and suggests that old, outdated, national regulatory models should not be applied to the Internet. This paper outlines why much existing regulation is unnecessary and gives alternative models for any future regulation.

I. An Introduction: Concepts of Convergence

Today, we see companies -- including telecommunications, media, and IT companies -- using the flexibility of digital technologies to offer services outside their traditional business sectors or offering similar services over different mediums, increasingly on an international scale. Digital technology enables a substantially broader range of traditional and new services to be transported over the existing telecommunications network. It also allows the development of integrated consumer devices that can be used for several different purposes, such as telephony, television, or personal computing. As bandwidth increases, the Internet will be used to deliver not just text and static images, but audio and video as well, to hundreds of millions of people worldwide. Not only are more and more types of media being delivered over the Internet, Internet services are being delivered over an increasing number of platforms. Internet service providers are using telephone lines, cable TV systems, cellular phone networks, fiber optic cables, fixed wireless systems, satellites, and soon laser systems to connect their customers to the Internet. This convergence of different media types is providing many significant new opportunities for media companies, Internet service providers, and individuals. Some examples of convergence include:

• Use of the Internet today for voice telephony;
• Micro-browsers on mobile telephones and wireless PDAs (such as the Palm Pilot);
• Internet services delivered over telephone lines to television sets via systems like Web TV;
• E-mail and World Wide Web access via digital TV decoders; and
• Webcasting of radio and TV programming on the Internet.

Convergence is being driven by rapid improvements in digital technologies (microelectronics, software, and digital communications), most notably:

• Digitalisation - the development of infrastructure supporting digital transmission and reception, and high-speed digital networks based on packet technology;
• Compression - the development of techniques to compress an analog signal (radio, television, speech) for digital transmission with an acceptable quality when decoded;
• Increased computing power - the continuing reduction in the cost of micro processors, storage and all other components of processing;
• Broadband networks - the development of new techniques, using existing and new infrastructure, for high-speed transmission of information to and from end-users;
• Very Large Scale Integration (VLSI) - the ability to develop complex VLSI to integrate technology using agreed upon standards to create the economies of scope and scale for mass market products; and
• Application interfaces - the development of suites of interface standards to support delivery of multiple services over a digital interface.

The rapid pace of convergence and the dramatic changes it is causing in the telecommunications and media marketplace pose challenges for policy makers around globe. The member economies of the Asia Pacific Economic Cooperation (APEC) forum have developed a working definition of convergence and are working together to understand and address the policy challenges associated with it. The APEC Telecommunications Working Group described the challenges well in a recent document:

"Convergence involves the ongoing coming together of a number of technologies previously considered separate. There is a need to consider changes in management and regulation associated with this integration of telecommunications, information technology (using computer/internet) and broadcasting. The technology enabled, hybrid applications which are a product of the proliferation of the combined technologies, appear to users through fixed or mobile access, offering voice, data, image pictures, on-line and interactive services simultaneously - as multimedia services."(i)

Technical and regulatory barriers to entry in both telecommunications and broadcasting markets have been falling and are likely to continue to do so. Telecommunications markets around the world are being liberalized. In broadcasting, the development of multi-channel service provision and the anticipated use of digital technology are removing traditional barriers to entry. Although each sector has become more competitive, which might suggest a reduced need for regulatory oversight, the cross-entry of telecommunications and broadcasting firms into each other's markets, while ultimately providing more competition, has also raised difficult transitional regulatory issues. This is particularly the case as companies from different media industry sectors (such as telephony and cable television) begin to deliver similar Internet services. Attempts to impose traditional industry-based regulatory mechanisms -- which were developed for traditional media -- on new Internet services, could prove to be ineffective and even harmful in this new rapidly growing market.

II. The Impact of Convergence and the Internet

The Internet and convergence enables different network platforms to carry essentially similar kinds of service. The concern is that some governments may seek to apply old regulatory models, such as broadcasting or telecommunications, to the Internet and Internet services.

For example, we see that telecommunications companies are offering video programming over their networks and have become major players in the provision of Internet access, as well as backbone infrastructure. Broadcasters have provided data services over their networks for a number of years and these services now include the digital transmission of both radio and television. Cable operators are providing a range of telecommunications services, including voice telephony while starting to deploy cable modems to offer high speed Internet access, in addition to their traditional business of television programming distribution.

Digital data may be carried over broadcast radio and television networks, cable TV systems, terrestrial wired cellular phone networks, or satellite systems. When applied to broadcasting networks, the most significant impact of digitalization is the immediate expansion of capacity, enabling a larger amount of programming and a wider range of services to be provided.

Digital content can be used in different environments and delivered on different network infrastructures. Internet technology is leading to platform independence. The Internet has evolved around the Internet Protocol (IP). It is important that other networks support IP so they become part of the Internet and applications be developed at the IP or higher layers.

The Internet has developed differently from traditional broadcasting and telecommunications. It has been essentially user-driven and users generate a substantial part of the content. Another characteristic of the Internet is that it functions as a medium for publishing, broadcasting, and communication. Unlike traditional media, the Internet supports a variety of communication modes, both transactional and broadcast in nature.

III. Policy and Regulatory Issues, and Convergence

Convergence between different telecommunications and broadcasting infrastructures and services is raising challenges for regulatory frameworks, which by and large do not reflect the Internet and which will need to be modified or replaced.

It should be pointed out that the costs of regulatory error - in terms of distorted signals to markets - are high in newly emerging or restructuring markets created by convergence. The risk of error is great because such markets are unlikely to be understood very well by participants themselves, let alone regulators. There are a number of reasons for a cautious approach by governments in the area of convergence:

• The speed and unpredictability of technological change and the consequences these changes have on the market. The market is better placed than governments to respond flexibly and quickly to these uncertainties.
• The other uncertainties which characterise rapidly changing markets, e.g., uncertainty as to levels and patterns of demand for new services. In such an environment, a flexible regulatory approach is imperative to maximise the flexibility of market participants to seek viable business models.
• Convergence implies a broadening of markets and enhancement of competition. A definitive characteristic of convergence is increasing substitutability of goods and services, across traditional industry boundaries. Absent regulatory distortion, this should be the case for both infrastructure and services markets.

One developing model is to apply a different and more horizontal approach to existing regulation that distinguishes between the transport network infrastructure (transmission of signals) and the content or services provided over the network infrastructure. In such a regulatory environment, governments should move away from sector-based regulation to a more horizontal approach that covers infrastructure. This would ensure a consistent approach to infrastructure where regulation is no longer appropriate. The following diagrams illustrate how such a system might work:(ii)

Case Study: The Collision of the Internet with Broadcast Law

To promote discussion about new issues that could confront the Internet, the GIP co-sponsored a workshop on Next Generation Internet Policy in Brussels in mid-September 1999. During that forum, which was co-hosted by the European Commission and GIP, the coming collision of the Internet with broadcast law was highlighted as a major convergence issue to address in the coming years. In the near future, when hundreds of millions of people routinely watch streaming video and listen to streaming audio, the Internet will look very much like a mass medium, and many governments will want to regulate it accordingly. Yet, in the new digital environment, anyone can technically broadcast or otherwise provide content, making it increasingly difficult to identify whom to license, tax or regulate.

The GIP is concerned that in an effort to address issues, governments may seek to apply old regulatory models developed for broadcasting to the new world of the Internet, which would have detrimental consequences. Several participants in the Brussels workshop echoed this concern by describing efforts in several countries to impose different aspects of traditional regulation to the Internet. They expect the pressure to do so to increase as the share of Internet "viewers" increases. Therefore, it is imperative that our group and other private sector organizations work with policy makers to develop an alternative policy framework on this and other convergence issues. Such a framework should be consistent with the needs of the Internet and acknowledge these public policy concerns in order to be effective.

To foster discussion and debate on these issues, the GIP commissioned Professor Len Waverman of the London Business School to write a policy primer entitled "Broadcasting Hits the Internet," which is being released by the GIP at the same time as this statement on convergence and cyberspace. Professor Waverman's paper explores whether or not existing regulatory systems are appropriate or effective in an Internet environment. (While the GIP commissioned the paper, the opinions expressed in it are those of Dr. Waverman and do not necessarily reflect those of the GIP principals or GIP member companies. The GIP also expects to commission other papers in the future that reflect other/additional views on this issue.)

Some Guiding Principles for Convergence

The GIP is concerned that too little attention is being paid to the regulatory problems that will arise when the Internet is 100 times faster and 10 times as many people are connected to it than there are today. In the broader context of convergence, the GIP suggests that traditional regulatory polices based on industry boundaries (publishing, telephony, broadcasting,) may not apply in the Internet world. This does not necessarily imply that new laws are needed. Instead, the GIP simply proposes that there be serious consideration of how existing frameworks can be adapted or even eliminated (as competition grows), to promote flexibility, remove inconsistencies, and avoid discrimination within and across sectors.

As governments review the policy and regulatory implications of convergence, the GIP suggests that the following guiding principles be used:

• Government policies should empower users to obtain services they want;
• Government policies should not favor particular technologies nor particular providers;
• Governments should not place barriers that would harm network interconnection;
• Government should avoid regulation that prevents competition and application of market forces;
• Regulatory intervention should be kept to a minimum; and
• When trying to reconcile different regulatory regimes that apply to similar digital services, governments should realize that convergence will increase competition and thus reduce the need for regulation.

The GIP believes that the best way for governments to do this is to try to adapt existing telecommunications and broadcasting rules in a more horizontal way that separates the content from the underlying transport infrastructure and allows for greater deregulation or self-regulation in services.

For more information on GIP, please go to: http://www.gip.org/ or contact GIP Executive Director Allen Miller.

(i) - This working definition is being suggested as part of the Asia Pacific Economic Cooperation (APEC) Telecommunications Working Group's questionnaire on the "Convergence Issue." Other attempts to define convergence by international entities can by found in: OECD, "Web casting and Convergence: Policy Implications," OECD/GD (97) 221 and the European Commission, "Green Paper on the Convergence of the Telecommunications, Media and Information Technology Sectors, and the Implications for Regulation," COM (1997) 623.
(ii) - GIP members have exchanged views on this matter with government officials and regulators in the U.S., EU, and Asia, and there is a growing interest in exploring how a more horizontal approach to regulation may be the preferable way to address issues of convergence. Most recently, at a meeting with GIP members in Tokyo in early March 2000, Japan's Ministry of Post and Telecommunications (MPT) Director General Kanichiro Aritomi shared his ideas on how this horizontal approach might be used in the future. The second diagram shown below draws from his presentation and remarks.

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1997 GIP (Global Internet Project) All rights reserved.