The communications and media industries are increasingly important:- economically, socially and politically. They are accordingly subject to significant regulation aimed at ensuring:
- that the major land-line provider, BT, does not exploit its near monopoly power by charging other companies too much to carry their calls and data along its wires
- that all telecoms companies do not abuse their market power by charging too much - for instance to connect calls initiated by customers of other companies
- to ensure that everyone has access to a decent broadband service
- to ensure that the public have access to a wide range of freely expressed views in the media, and/or to accurately presented news
- to ensure that news organisations behave properly and responsibly when investigating and reporting their stories
- to ensure that the security services have appropriate access to communications between terrorists and between serious criminals.
The first of the new utility regulators - Oftel, now subsumed within Ofcom - was created in the early 1980s to control the behaviour of newly privatised British Telecom (now BT). As well as controlling BT's prices, Oftel sought to encourage competition in the industry, initially by licensing Mercury to compete directly with BT in a duopoly. Mercury even installed phone boxes in stations and on high streets - see photo opposite. But it eventually proved more effective to encourage competition by forcing BT to allow other companies to share its phone lines to individual premises - this is known as local loop unbundling. And then mobile technology came along ...
The regulation of this industry is nowadays increasingly bedevilled by convergence and overlap between its various components. As one expert put it: "We don't know what we are regulating. Everything is bits and bytes." A single wire or cable these days offers access to telephony, the internet (including email, movies, books, newspapers and magazines, and Skype), television, and home security services. Quadruple play companies offer television, internet, mobile phone and fixed-line telephone services. WhatsApp and Facebook are now offering alternative communication channels. And it is forecast that mobile phone operators will make more money from data than from voice by 2018. Should we therefore even be attempting to regulate the services, or how those services are delivered, or the companies that deliver them?
It is interesting, for instance, to note that we continue to regulate BT Openreach (access to BT's copper wire monopoly in delivering bits and bytes to the home) but we do not directly regulate Virgin Media's similar fibre-optic cable monopoly. Indeed, it is sometimes said that the US has just about given up trying to regulate these sectors, recognising that market dynamism offers many more benefits than regulation, however well intended and however intelligently applied. As long ago as 2005, Nicholas Economides was arguing that "Making effective use of elements of market organization in many telecommunications contexts often requires considerable and detailed regulation. Many times, these regulations, even if they work well for existing markets, have pretty poor results when applied to markets for new products. This lack of flexibility of regulation is particularly important in modern telecommunications because new telecommunications services are continually produced, helped by the availability of complementary goods and services." If it was true then, it is doubly true today.
But a pure free-for-all would have unpleasant consequences. There are some very powerful companies in the industry which could inflict significant economic and social damage if not properly regulated. And surely the state has to ensure that someone provides universal access to emergency services (e.g. through 999/112) but that is increasingly difficult to arrange when the caller may be using a mobile/cell phone, or Skype on their laptop or iPad, none of which can easily be linked to a specific address? Also, are we content to tell the 'rural grandma' that she cannot access any modern service - or not at a reasonable price - especially when the government itself and many private sector organisations are increasingly hard to reach other than via the internet?
Equally, when assessing whether there are sufficient competing sources of news ('media plurality'), should the regulator take into account the availability of news and opinion provided over the internet, and if so should privately-provided websites (such as this one), blogs, Twitter, Facebook, YouTube etc. be taken into account?
And what is the point of regulating the behaviour of the printed media (whose sales are shrinking by around 10% a year) when photos, rumours and other stories (whether true or otherwise) are so quickly and effectively disseminated via Twitter, YouTube and the rest? The answer, I guess, is that there is something particularly personal and wounding about reading something horrible about yourself in a newspaper. It may be 'tomorrow's fish and chip wrapping' but it is considerably more tangible than something on the web. Philip Stephens summarised this rather nicely: 'The role of newspapers in a democratic society is to speak truth unto power, not to trample over powerless citizens.' But it was interesting to note that the Lord McAlpine, very seriously defamed in the twittersphere, focussed his legal action on those who had the highest number of Twitter followers, and who were slow to correct and apologise for the defamation.
Ofcom sets the price controls and oversees the interconnection rules required by the first two types of regulation, all within a cross-EU framework underpinned by EU Directives. The detail is tremendously complicated, partly because of the number of well-resourced players, and partly because of the number of different economic products and hence economic (monopolisable) markets.
Now let's look, inevitably quite briefly, at some of the current regulatory issues.
The case for and against the interception of communications by the security services is somewhat beyond the scope of this website, but I cannot resist repeating some comments made by Bird & Bird's Graham Smith (during the 2016 debate on the appropriate extent of internet surveillance) in which he draws further attention to the continuing convergence of communications technologies.
Mandating that logs of online reading habits be kept is analogous to being made, in the off-line world, to keep a list of books, newspapers and magazines that we have read in the last year. We never used to read books over the telephone. Now we read blogs remotely. It is a mere accident of technology that by doing that, instead of reading a physical book ... we engage in what the [legislation] classifies as 'communication.'
Over in the USA, the Federal Communications Commission (FCC) took an important decision in February 2015 when it decided to enforce net neutrality - all internet traffic to be treated equally, with no 'fast lanes'. ISPs could therefore not block content, nor speed up or slow down data from particular websites because they have been paid to do so. And they could not give preferential treatment to their own content at the expense of their competitors.
There were good arguments for and against the decision, but on balance it probably favoured competition (especially from smaller players) although it may discourage some innovation, for instance of products which could be provided only over super-fast networks.
The EU followed suit in 2016.
However, back in the USA, the Trump administration then re-examined the issue and announced in November 2017 that it planned to scrap the net neutrality rules. This decision was confirmed by the FCC in December 2017 and took effect in June 2018. The immediate winners will be the telecoms companies/ISPs who will be able to charge higher fees to those that are willing to pay for access to faster services. The immediate losers, therefore, will be the big tech conglomerates - Facebook, Amazon, Netflix and Google - and their customers, of course, who will want access to the higher speeds. Ajit Pai, the chair of the FCC noted that their decision changed the balance of power between tech and telecoms. In the longer run ... who knows? The big tech companies are now so dominant that they probably already stifle innovation.
Just to complicate the issue, several US states have brought in laws which enshrine net neutrality at the state level, which must have created a huge regulatory tangle.
Here in the UK, Ofcom has been considering whether BT should continue to own the physical network (Openreach) which is 'functionally separated' - i.e. managerially and financially ring-fenced - from BT, and which is supposed to offer identical services and service levels to all telecoms providers. Many broadband customers, however, and rivals such as Vodafone, Sky and TalkTalk, argue that Openreach is struggling to keep pace with demand for high-speed broadband, and more generally provides a relatively poor service. They also complain that Openreach made too much money (thus indirectly subsidising BT) and failed to invest or innovate as much as its counterparts overseas. BT, needless to say, did not agree.
It was unfortunate that Government Minister Ed Vaizey intervened in the issue in September 2015 when he announced that he was 'a sceptic' about the need to split BT and Openreach, arguing that 'full separation would be an enormous undertaking, incredibly time consuming [and have] lots of potential to backfire'. This left the impression that Ofcom would be acting less than independently were they to say that they agreed with him, as indeed they did when reporting around a year later. It is also quite likely that BR and Mr Vaizey were exaggerating the time it would take to separate Openreach. The main problem would be disentangling BT's software systems but critics noted that Lloyds Bank had managed to spin off TSB relatively quickly once it had resolved to do so.
Ofcom announced in March 2017 that BT had (under pressure) agreed to take a further step towards full separation by spinning Openreach off into a legally separate entity with special governance arrangements. Openreach's chief executive will report to its chairman on most issues but will still have to report to BT's Chief Executive on legal, fiduciary and regulatory issues. BT will also continue to set Openreach's budget. It remains to be seen whether this makes a difference in practice. Critics regard it as a classic British fudge.
Ofcom then announced that it planned to introduce new rules which would make it easier for competitors to lay their own fibre networks along Openreach's infrastructure, such as telegraph poles, tunnels and ducts.
Universal Service Obligation
Every building in the UK - however remote - is entitled to have its mail delivered by Royal Mail. This European Union (EU) wide legal requirement is known as the Universal Service Obligation - USO for short. Other industries such as electricity, gas and water, have similar obligations, often referred to as Public Service Obligations if the obligation is not universal, because of the difficulty of accessing remote locations.
There is a similar EU USO for broadband, but the UK government has chosen to exceed the EU minimum speeds and requires BT Openreach to give 95% of the UK population access to a 25 megabits per second (mps) connection by 2017, with the remaining 5% receiving 10mps by 2020.
Mobile Phone Company Mergers
Orange and TMobile were allowed to merge, thus reducing the number of mobile operators to four, the others being O2, Three (owned by Hutchison) and Vodafone.
BT then bought EE, but this did not reduce the number of competing companies.
Hutchison/Three then tried to merge with O2, but this merger was prohibited by the appropriate competition authority, in this case the European Commission.
Broadcasting Standards & Media Plurality
This regulatory activity is aimed at ensuring a wide range of news outlets, and broadcasters' compliance with certain standards. It is enforced by government Ministers, advised by Ofcom and the Competition and Markets Authority. Click here for more information.
There is some pressure (from broadcasters) to extend broadcasting regulation to the internet, so bringing Netflix and Amazon within the scope of content regulators such as Ofcom. Canada’s communications regulation has for instance recommended that its government should implement new regulation and taxation for internet services in order to support the creation of Canadian content. The problem, of course, is that although modern broadcasting is becoming synonymous with the internet, the opposite is not true. The internet is not a broadcasting system and cannot be regulated as such.
A further discussion of internet regulation may be found in my web page focussing on the regulation of the technology giants.
As an amusing aside, UK law requires a certain proportion of public service broadcasting to originate outside London - defined as outside the M25. This has apparently led to a good deal of regional broadcasting from such far-flung reaches of the UK as St Albans and Sevenoaks.
Newspapers - Leveson etc.
The proper behaviour of broadcasters and newspaper proprietors is monitored by organisations such as Ofcom, the BBC Trust, and bodies set up following the Leveson Report.
Ofcom and the BBC Trust regulate the behaviour of Radio and TV companies, overseeing, for instance, the operation of the adult content watershed rules. There are occasional controversies, of course, but the location of the acceptable/unacceptable borderline seems well established, and generally uncontroversial. There is very seldom any serious criticism that the regulators are acting as either under- or over-zealous censors.
But newspaper regulation is much more controversial .... Click here for more detail.
Google and Facebook, and maybe others such as Twitter, are beginning to look like natural monopolies. This makes them very attractive to their customers - it's much easier if all the information you need is in one place, and if everyone is on the same network, especially when they appear to be free services.
But they are very powerful and yet unaccountable. Their secret algorithms, responding to an individual's searches and preferences, control what information then reaches those same individuals. And they are very unwilling (or claim to be unable) to control what information they distribute, however much distress or damage it causes. It's early days, and the technology is evolving very rapidly, but it looks as though the need for a certain amount of public/regulatory oversight may become irresistible .. unless they begin to regulate themselves.
Follow this link to read about the British Board of Film Classification – a strange but effective, privately funded, not-for-profit, part-voluntary, part-statutory, regulatory body.
1. I couldn't resist taking a picture of this old manhole cover dating back to the days when the UK telephone system was managed by the Post Office - the same organisation that ran the Royal Mail.
2. See also my history of competition webpage to read about the 1922 creation of the UK's broadcasting monopoly, otherwise known as the BBC.