Regulation: Implications of Convergence

Technology is driven by scientists
and marketers. Policy is driven by politicians. So by definition,
there is a big gap inherent between the paces of technology
development and policy making. And one can say categorically,
despite the "Al Gores" and "Chandrababu Naidus"
of the world, that gap will continue to exist in the forseeable
future. So, it is essential that all discussions and debates
on regulatory implications on convergence should take place
keeping this truth in mind, especially when the world is moving
towards democratic governance from centralized communist set-ups.

Come to convergence. Regulation
has not been able (quite naturally) to keep pace with the developments
in technology. Digitalization has made it possible for technologies
to smoothly integrate with each other. This has resulted in
service providers being able to provide what was so far a distinct
service, being provided by another class of service provider.
This, while being regulated by the regulatory provisions of
their traditional service, i.e. sector specific regulation.
This, along with rapid creation of new services, which do not
clearly fall into any of the traditional categories of service,
is giving tough times to the regulators around the world.

Pertinent Points

In December 1996, International Telecom Union (ITU) held a colloquium
on Regulatory Implications of Telecommunications Convergence
at its headquarters in Geneva, which saw participation of policy
makers, regulators and other communication professionals from
around the world. Though it is almost three years now, most
of the issues remain as relevant as they were then, because
ITU focused on the pure regulatory issues at a more holistic
level rather than on the specific example of convergence.

Though there were diverse opinions
about the meaning, nature, and scope of the term convergence
itself, there was a broad consensus that convergence will have
an important and inevitable impact upon the policies, regulatory
frameworks, and structures of telecom.

Taking the three levels at which
regulation is influenced-national competition policy, multilateral
trade agreements like WTO, and sector specific policies within
a country-the colloquium concluded that regulation will be increasingly
driven at the first two levels in future, rather than at the
third. The colloquium also noted emphatically that in the future
the impact of convergence upon regulation would be greater than
the impact of regulation upon convergence. The theme of much
of discussion was not how to regulate convergence, but how regulation
should (and must) change in light of convergence.

However, unlike most other hyped talks, the colloquium pointed
out that there are certain areas where the role of regulation
has become more important than ever before because of convergence.
Three areas it explicitly mentioned were:

• Radio spectrum management for
  assuring equitable allocation of frequencies among competing
  services, and limit interference
  
  
• Promotion of minimal technical
  standards if needed to ensure universal compatibility of systems
  and
  
  
• Promotion of national/social
  objectives for information content for many countries The colloquium also recognized
  the fact that there need not be and "perhaps should not
  be" a common perspective on all of the issues across all
  the countries. This is a bold statement considering the fact
  that technology companies try their best to convince the policy
  makers and industry in less developed countries, something just
  the opposite.
  
  

  However, it echoed the generic
  campaign by the global technology vendors that convergence implies
  opportunities for regulators in less developed countries, to
  pursue their most basic objectives, by leap frogging development
  stages and directly influence the market to invest on less costly,
  more efficient technologies. This, the participants were careful
  enough to point out, while seeking to maintain a balance of
  social and economic interests, and equitable use of public resources.
  
  

  The most significant consensus
  was to question the need of importance for each specific regulatory
  issue. Summarized in a set of three simple, hierarchical questions,
  this is an ideal reference model for all governments seeking
  to have a re-look at their regulation systems at the wake of
  convergence. The questions are as follows:
  
  

  • Should it be regulated (is there
    a legitimate public interest goal, and would the benefits
    of regulation outweigh its costs relative to market-based
    options)?
    
    
  • Can it be regulated (can regulation
    meaningfully achieve the desired goals)?
    
    
  • How can regulation achieve the
    desired result, in a targeted, minimalist and resource-efficient
    way?
    
    

  It is interesting to note than
  in that many respondents to the European Commission Green Paper
  on Convergence also expressed a similar view that the future
  regulation in the wake of convergence should be competition-based
  with no a priori assumption that all services should be regulated.
  
  Challenges
  
  

  Some of the most significant challenges
  (not completely mutually exclusive) to regulation brought about
  by convergence are as follows:
  
  

  Confusion regarding objectives
  of regulation: This is a major challenge for many nations. Most
  of the content regulation and regulation on the activities of
  foreign participation in services are done with a social/nationalistic
  objective in mind, whereas most of the regulation to control
  competition is done with an economic objective. With all trying
  to enter each other''''''''s domains, the balancing act has become
  even tougher.
  
  

  Limitation of sector specific regulation:
  As multiple cross-sector service provision is possible by a
  single service provider because of technology convergence, sector
  specific regulation is increasingly becoming difficult. For
  example, Internet traffic can be carried by cable TV service
  providers, who are essentially providing what has essentially
  been a communication service but are not subject to the regulations
  that telecom sector is subject to.
  
  

  Limitation of geography-specific
  regulation: For example, a terrestrial broadcaster is subject
  to strict regulation of the country it operates in, while satellite
  channels can beam directly to the receiver with hardly any regulation. Gaps in present regulatory framework
  to tackle new media and services: Emergence of new mediums like
  Internet, which combine all the services and is global in nature
  has made it possible to create new services almost instantly.
  All the present sector specific regulations together do not
  have any mechanism to regulate that.
  
  

  Overlaps of regulatory domains
  of multiple regulators: Sometimes, there can be conflict over
  the definition of the domains of regulation of multiple regulators.
  The paths that the regulators would take depend on their most
  important objective and also on their understanding of the sector,
  which are influenced in many cases by their history. This can
  result in stalemate, affecting policy making and thus growth
  of the sectors concerned.
  
  

  Inequality in regulatory frameworks
  of different countries: Because of their dissimilarities in
  societies and also in states of market developments, there is
  an inequality in the level, nature, and even objectives of regulation
  in different countries. With globalization, the world is fast
  becoming one market. There is pressure on national government
  to have more deregulation. For example, countries like the US
  are very liberal in all aspects. Western Europe is strictly
  closed in terms of foreign technology and stringent in content
  regulation, but very liberal when it comes to competition among
  local service providers and really does not interfere in the
  market. Canada is stringent only in content regulation, calling
  it nationalistic objective, but at the same time does not interfere
  in free competition. Most of the Nordic countries are liberal.
  New Zealand does not have anything called a telecom regulator.
  Multilateral trade organizations like Wold Trade Organization
  (WTO) are trying to achieve an uphill task in terms of making
  the countries to agree to some minimum standard regulation.
  
  

  Conflicting regulatory stances
  affecting operation of companies: A company operating in a converged
  sector sometimes has to go through scrutiny by different regulators.
  Hence, many companies cannot operate freely under the pressure.
  And if the stances are not consistent, there may be a jeopardy.
  This limits innovation, free business decisions, thus affecting
  productivity of the companies. While this is undesirable, it
  is tough for any regulatory mechanism to completely remove this.
  
  

  The emergence of the new monopolists:
  Most countries had monopoly government-owned telecom service
  providers and broadcasters. Traditionally, a major task of regulators
  in the newly open markets has been to keep these monopoly service
  providers in check. However, today a new breed of monopolists
  is emerging-companies that are using their monopolies in some
  technology areas and combining it with convergence to expand
  into other areas and kill competition there. All regulators
  will have to face this challenge in the new millennium.
  
  

  While these are some of the most
  common and identifiable challenges, there are many more challenges
  that are posed almost everyday because of convergence. It is
  neither possible nor relevant to try discussing all of them
  here. However, there are important questions that are being
  raised on the role of regulation itself, in the wake of convergence.
  It is necessary to debate those nationally, because the issues
  concerned are more national than global in character, despite
  globalization of economy. Approaches to Future Regulations
  
  Even as many broadly agree on what convergence covers and what
  are the broader challenges for regulation in the wake of converging
  technologies and markets, there is a very diverse set of opinions
  when it comes to future approaches to convergence.
  
  

  While assuming the ITU colloquium
  conclusion that in the future convergence will have more impact
  on regulation than the other way round, it is nevertheless necessary
  that the nations take a proactive stance to effectively cope
  with convergence. Internet, for example, has made the life of
  regulators difficult. But this very Internet is being used by
  many countries to close the gap in telecommunications.
  
  

  Most countries have either revised
  their outdated (in this case more than 15 years old) telecommunications
  and broadcasting legislation and replaced them with more forward-looking
  legislation. The regulators are guided by clearly spelt out
  objectives in those acts. But then, there are countries which
  have not been so fast moving, including India which has a 115
  year old Indian Telegraph Act. Changing the legislation means
  you approach convergence with an open arm rather than convergence
  approaching you. This not only makes the regulation more clear
  and transparent, this saves a lot of time while implementing
  policies. Some others have come out with what is called the
  convergence policy statements. Canada is one example, which
  despite stringent control over broadcasting regulation, has
  really moved fast in promoting competition.
  
  

  While a clear-cut policy removes
  a lot of problems, the ever evolving technologies and market
  still require strong regulations.
  
  

  The first step in the regulation
  should be clear-cut objectives of each regulatory stance taken.
  There are three specific objectives that drive most regulation.
  Maintaining a balance among these objectives is the job of any
  regulator. These objectives are:
  
  

  • Serving the consumer: This includes
    ensuring such things as universal access, right tariff, and
    quality of service. These are the ultimate objectives for
    market regulation. These require little regulation once the
    market matures.
    
    
  • Nationalistic objectives: These
    include handling of areas that could be national security
    threats; content regulation to ensure that politically/socially
    sensitive information is not broadcast (though Internet now
    makes it increasingly difficult) and the information does
    not hurt national ethos; and encouragement to local technologies,
    which again is seen as protectionism by many.
    
    
  • Economic objectives: This is
    the most well known role of regulators. This includes ensuring
    fair competition, no undue advantage to specific sectors,
    and equitable distribution of limited resources like frequency
    spectrum. Steps
    
    Among the steps that need to be taken are
    
    
    • minimizing overlaps and gaps
      
      
    • clarifying the domains and powers
      of different regulators to the maximum extent possible
      
      
    • evolve a strong and neutral
      regulatory regime to coherently address all sector, service,
      and medium specific regulation
      
      
    • specific steps to identify and
      check monopolists
      
      
    • building consumer awareness
      in new markets that will minimize the role of regulator and
      prepare an environment to leave it to the market forces in
      the long run.
      
      

    The need is to evolve a regulatory
    model that is suitable for each country keeping in mind the
    challenges, local issues, industry structure, stage of technology
    and market penetration and, of course, the national competition
    policy, as decided from time to time.
    
    

    Needless to say, regulation rules
    and frameworks for each country can be decided by the policy
    makers in consultation with the industry in that country only.
    It is necessary for the developed nations to acknowledge that
    regulation more than convergence, is evolutionary than revolutionary.
    And most certainly, it cannot be thrust upon a country.
    
    

    It has to be kept in mind that
    if the market players can be so responsible and mature, so can
    be the national governments.