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INTERMEDIA

News brief

16.09.2009
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Copyright: Googlemania splits US, EU
Google says.
» Scanning to date on its Library Project only allows users some “snippets” of content and users still have to hunt down a complete copy of out of print books themselves
» Under the Settlement, for users in the US, that will change. Up to 20% of a text will be previewable by anyone over the internet
» Google will allow users in public libraries free downloads of the entire text, and private users will be able to purchase for individual use
» If the book is old enough to be in the public domain anyway, Google will allow users free downloads
» Universities will be given special institutional benefits and vision- impaired users will be able to search and read in significantly improved ways
» Foreign language texts will be especially attractive (Google says books in Spanish account for 10% of the books already scanned)
» Publishers & authors of in-print books will see expanded market in paid-for downloads
LONDON – It had to happen at some stage: a major legal battle with international ramifications in the world of digital copyright. That it involves the world’s largest search engine company, its actual plans and potential ambi- tions comes as little surprise to most observers, but the eventual outcome remains far from clear. The story so far: in the US, Google proposed a solution last October to a long-running class action for copyright infringement brought by American author- and publishing- representative groups as a result of its plans to digitize millions of books and make them searchable online. The proposed settlement involves a USD 125 million sum effectively funding rights payments to content holders. Google wants to scan books for digital sales with content provided by out of print books, orphaned works with no identified author and those where IP owners have given permis- sion (and who will revenue share with Google in sales revenues). In earlier versions of the settlement proposal, Google had wanted to have an opt-out system which would have included authors not explicitly refusing. The prospect of a mass-market and comprehensive digital collection excites many who see convenience in easily finding and accessing hard-to-get books or want to sample them before buying whoever actually holds the digital archive. However, the proposals remain controversial and have gener- ated heated debate, attracting opposi- tion at grassroots, corporate and inter- governmental levels; entities frequently in opposition have uncharacteristically
found themselves on the same side – and against Google. Opposition mainly centres around a range of topics from the implica- tions of a “privatized” digital culture, to intellectual property, antitrust, and public policy concerns. At the grass- roots level, the convenience offered is countered by unease that ultimately a global cultural heritage might in some sense simply be brought entirely under the wholesale control of a single – and private – provider. Some argue that any such mass digitization particularly of works that are orphaned or out of copyright must be firmly rooted – and controlled – in the public domain. Meanwhile, on a corporate level, current competitors to Google are exer- cised by what they see as a dominant player capturing a new market without a “level playing field”. Major players such as Microsoft, Yahoo and Amazon have all made amicus curiae filings against the settlement proposal and the judicial procedure involved. Another filing on behalf of the Open Book Alliance in which the three companies are partners by Silicon Valley lawyer Gary Reback claims the settle- ment is also illegal on antitrust grounds because, in seeking a court action it gives Google a dominant position in digital books [it] “could never have achieved through free market competi- tion,” specifically because Google and its publisher partners will be able to set digital book prices without fear of competition. Mr Reback suggests that to avoid this, the settlement should compel Google to license its digital archive to competitors. The US Justice Department has also been looking at the antri- trust implications of such a settlement. But it is at the intergovernmental level that most alarm seems to have been created. In Europe, the impli- cations of a settlement have spurred controversy because they highlight an uncomfortable fact: the market is highly fragmented. Copyright issues in Europe remain largely national in character, legal distinctions between common law and civil law jurisdictions- abound, and rights procedures are still
Events Diary
September 2009 » IBC 2009 10-15 SEPTEMBER Amsterdam, Netherlands www.ibc.org » TPRC 09 28-30 SEPTEMBER Washington DC, USA www.tprc2009.org » Social TV Forum 28-29 SEPTEMBER London,UK www.social-tv.net
October 2009 » ITU Telecom WORLD 5-9 OCTOBER Geneva, Switzerland www.itu.int » Streaming Media Europe 15-16 OCTOBER London, UK www.streamingmedia.com
negotiated separately in each of the 27 Member States. The settlement proposals are already facing stiff opposition from French and German governments – two of the countries that are tradition- ally most protective of authors’ rights – on grounds that the proposed US settlement would infringe copyrights in Europe as well as the cultural heritage rationale. The EU publicly funds its own book digitization project, Europeana, and has reportedly digitized around
» (1C International Regulators Forum 24-25 OCTOBER Montreal, Canada www.iicom.org » IIC Annual Conference 26-27 OCTOBER Montreal, Canada www.iicom.org
November 2009 » ITU Global Symposium for Regulators 10-12 NOVEMBER Beirut, Lebanon www.itu.int » I DATE 2009 18-19 NOVEMBER Montpellier, France www.idate.fr
4 million volumes to date. Europe over the past few years has also made proposals regarding the digital future of orphaned works. EC Commissioner Viviane Reding and her colleagues have promised immediate consultation with interested parties before a response is made. Offi- cials acknowledge the complex nature of copyright in Europe. It’s potentially a more general problem too, because the global protocol underpinning all copyright, the Berne Convention, is considered by many to be dangerously fragile in the face of serious challenges from digital reproduction. However, ultimately European offi- cials might even welcome the debate as it could give them a chance to complete the elusive harmonization in copyright policy they have sought for two decades and, which in the view of many, remains a key plank for the development of the information society in the region. For its part, Google says it has no plans to dominate the provision of digitized books and would welcome the involvement of other players in a competitive marketplace. In the European market, it says it has offered concessions protecting European authors and offered Europeans over- sight and representation on its Book Rights Registry that will administer the digitization. US court judgement is expected in October.
inter
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September 2009 Volume 37 Issue 3
News brief
Mobile mergers raise competition fears
LONDON – In what could be a prelude to a major telecom consoli- dation in several mature markets, T-Mobile and Orange have announced as Intermedia was going to press that they plan to merge their UK mobile businesses. Whilst some restructuring had been expected in the UK markets, the actual partnership has been a relative surprise. The UK market currently consists of mobile competition from 5 infrastruc- ture-based operators: Vodafone, O2, Orange, T-Mobile and the specialist 3G operator, 3UK, but the providers also support a wide variety of mobile virtual network operators (MVNOs). The two operators say they expect to accrue major efficiency benefits and cost-savings in the near-term (see sidebar). Reaction to the news has made observers mull the prospect of regula- tory approval for such a large merger. In a more strategic sense, some see the prospect of a reshaping of European telecom markets with outright mergers between service providers across borders, a move which has long been expected in European telecom circles but frequently ruled out on political grounds. Some mobile mergers have already taken place in Europe, notably in Austria and the Netherlands, but although the number of operators was reduced, neither national market was in itself a major one, unlike the UK, which is one of the “big three” in Europe. The parent groups of Orange and T-Mobile are themselves national ex-state owned incumbent telcos and both show clear signs of major restructuring in their home markets. A decade ago, many
observers believed that the groups would eventually combine. In the near term however, regulatory approval is required for the plans to go ahead. There was no immediate public reaction to the merger announcement by either the UK telecom regulator, Ofcom, which holds concurrent powers as a competition regulator, or the Office of Fair Trading (the UK regulator that will likely take the lead in competition analysis) or the EC’s own competition authorities. However, given the tight legal timescale that major merger proposals must comply with in Europe for their approval process, many surmized the plans were already being scrutinized well before the public announcement. Many observers seem to see little problem with the deal as it stands. The companies, pending due diligence, reportedly expect to have a finalized agreement in place by the end of October 2009. “The combined market share of 37% may not raise any red flags,” suggests Telecompaper analysts Corina Schultz and Tim Poulus, “but Ofcom will likely use its review of the deal as a means of pushing through an industry-wide deal on spectrum refarming.” Regulatory green light? However, regulatoryapprovalcannot be taken for granted points out Matt Hatton, principal analyst at Analysys Mason. “It is by no means certain guar- anteed that UK competition authorities will approve the deal, and even if they do,” says Mr Hatton, “they may attach some stringent requirements, such as obliging the operators to help provide rural coverage.”
In fact, Mr Hatton notes, there may be a whole set of implications that need to be addressed. These include: network sharing, the vendor and infra- structure supply side to both opera- tors, operating synergies, spectrum refarming, the position of MVNOs such as Virgin Mobile that currently rely on T-Mobile but are themselves competi- tors in the marketplace, the position of the two other major network operators in the marketplace and the feasibility of any other remaining merger plans being allowed through if this one does proceed. For example, the deal seems to imply that network sharing, a tactic whereby operators are finding it cost-effective to share network backbones to carry traffic is not as economically attrac- tive as an outright merger of opera- tions. Regulators have progressively relaxed their restrictions on network sharing after initially being hostile to any move away from fully separate, but parallel and competitive networks. T-Mobile has recently established a network sharing deal with 3UK and Mr Hatton says he expects the wave of network sharing deals to continue but to become a “more intricate web”. However, suggests Mr Hatton, if the present deal were to go ahead, it is unlikely that the remaining mobile network operators in the UK, Vodafone and O2 would themselves be allowed to merge with another major operator, although they probably would be able to bid for 3UK. The deal does probably have implications for major supplier groups such as Ericsson, who find themselves effectively providing mobile network infrastructure to most of the UK market.
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September 2009 Volume 37 Issue 3
Another key point is likely to be spectrum. Here, the UK mobile industry and Ofcom are in a complex thread of negotiations over spectrum refarming to prepare for upcoming 4G and LIE services. Here, the picture is uncertain, says Matt Hatton, because although the licensing of 70MHz blocks in the 2.6GHz band is imminent, and the actual bidder headcount may be reduced because of the merger leading to low prices for the spectrum blocks, “the merger of these 1800MHz opera- tors also has potential implications for 900MHz refarming.” Mr Hatton says the deal might inadvertently delay any general agree- ment on refarming “although it will make an agreement simpler to imple- ment.” Telecompaper’s Corina Schultz and Tim Poulus say that it is expected Orange-T Mobile will give up frequen- cies in the 1800MHz band, and Voda- fone-O2 likely to surrender some in the 900MHz band. Telecompaper suggests that the deal could see “enormous” cost savings in network and back office opera- tions, even if these may take some time to materialize. It also speculates that some other consolidation moves across Europe may be next, although it acknowledges in the case of France Telecom and Deutsche Telekom there is relatively little overlap in mobile opera- tions internationally with the excep- tion of Poland, Slovakia, Austria and Romania. In the near term, however, it acknowledges that more basic consid- erations rule, particularly on the future of the two strongly established brands from each operator. Brand reinven- tion is a risky strategy and may lead to customers deserting the new operator; the operators have 18 months to make their choices.
Orange and T-Mobile: JV anatomy
0/50 joint venture will be created by the merger of all UK operations of France Telecom and Deutsche Telekom creating the UK’s s largest mobile operator potentially with 28.4 million customers and a i 37% market share I
» Cost savings will accrue through rationalizing distribution channels and store outlets, overlapping network facility decommissioning, and workforce reductions. The plans call for a return of 90% of the free cash flow of the joint venture to the parent companies. T-Mobile will also provide its 50% stake in its current network sharing joint venture : with 3UK |
» To form the new joint venture, Deutsche Telekom will contribute its UK operation, T-Mobile UK on a cash-free, debt-free arrangement ; including its present 50% holding in a network sharing joint venture ! with 3UK. It is expecting to also contribute GBP 1.5 billion of tax losses. France Telecom will contribute its Orange UK Mobile company and a GBP 1.25 billion intra-group net debt to equalize, half of which will be repaid by the joint venture, so that after closing each company will have assigned a shareholder loan of GPB 625 million to the joint ; venture.
» The 2008 revenues for the companies were GBP 7.7 billion, gave an ! EBIDA of GBP 1.7 billion and the deal is expected to add free cash flow from 2010 and to earnings per share from 2011. Board positions will be split between current executives of both companies.
» The companies expect synergies from the deal to be of the order of GBP 3.5 billion. Savings are expected in both capital and operating expenditures. Capex savings are projected at GBP 620 million for the period 2010-2014 and then GBP 100 million per year thereafter. Annual operating cost savings of GBP 445 million are expected from 2014, although extra costs of up to GBP 800 million are projected for the period 2010-2014 to support the restructuring
» The companies will continue to operate under their own brand names for the next 18 months; longer term, there may be a possible launch of a new brand
» Competitor investigations will likely focus on the concentration of market players as evidenced by market share calculations, and spec- trum allocation implications for the new market structure
www.ncom.org
September 2009 Volume 37 Issue 3
by Francesco Rizzuto
News analysis Remedying deficits in Europe’s telecom regulatory framework-Part 2
The finding of the 2006 review of the EU regulatory framework that many national regulatory authorities lack independence and resources and are subject to political pressure and outside interference is addressed by a recasting of Article 3 of the Framework Directive. The new version of Article 3 requires Member States to ensure and guarantee that national tele- communications authorities are not only independent as is currently the case, but that they exercise their powers impartially, transparently, and in a timely manner and that they have adequate financial and human resources to carry out the task assigned to them. This includes resources to enable them to actively contribute to BEREC.
Member States must ensure that national regulatory authorities have separate budgets that are made public. This requirement begs the question on what would happen if a budget was not adequate and indeed who decides what is adequate.
The obligation to take ‘umosty account’ is not the same as beif bound by an opinion of BEREQ
Member States are also to ensure that the goals of BEREC of promoting greater regulatory coordination and coherence are actively supported by their national regulatory authori- ties. Furthermore, Member States must ensure that national regulatory authorities take the utmost account of the opinions adopted by BEREC
when adopting their own decisions for their national markets. The obligation to take the utmost account is of course not the same as being bound by the opinion of BEREC. Ultimately national regula- tory authorities retain the discretion on the contents of any regulatory decision.
Obligation More importantly perhaps from the point of view of ensuring regulatory coherence and consistency, Article 3 lays down a positive obliga- tion on national regulatory authorise to support the goal of BEREC in promoting the convergence of regu- latory practice. Finally, Member States must ensure that the head of the national telecommunications authority can only be dismissed if they no longer fulfil the conditions required for the performance of their duties which must be laid down in advance in national law. Reasons for a dismissal must be given, which must be made public if requested by the dismissed head. Protection against the arbitrary dismissal for heads of national regu- latory bodies may enhance the inde- pendence of national regulators from political interference once appointed. The measure does not necessarily entirely depoliticise the operation of national regulatory authorities or insulate them from external political influence. Indeed, focusing on the firing of heads, as the new obligations do, deals with only part of the source of the potential problem. In order to be fired one first has to be hired. The way in which Member States hire heads of national regulatory authorities may also be problematic from the perspective of ensuring regulatory independence. Naturally the appointment procedure, the extent to which it is politicised or neutral and based on competence and expertise, for heads of national regulatory authorities and the length and possible renewal of their tenure is regulated by national law are also vital considerations that have a bearing on the independence of national regula- tory authorities. These issues are left to be determined by national law.
Breach of obligation The effective enforcement of the regulatory framework is also to be strengthened with the introduction of a new provision in the Framework Directive to deal with breaches of obligations under the Framework Directive and Specific Directives.
Non-compliance
The current Framework Directive is silent on penalties for non-compliance. Existing provisions of national law empowering national regula- tory authorities to impose fines have failed, according to Recital 41 of the proposed Directive amending the Framework Directive, to provide an adequate incentive to comply with regulatory requirements. Indeed, arguably there is an absence of effective powers in the event of non-compliance across the regulatory framework. The new provision is therefore designed to ensure the application of consistent and coherent principles to enforce- ment and penalties for the whole EU regulatory framework. To this end, a new Article 21 a on penalties is inserted in the Framework Directive. Member States must lay down rules on penalties applicable to infringements and take all measures necessary to ensure they are implemented. The penalties must be appro- priate, effective, proportionate and dissuasive. Member States must notify the Commission of the provi- sions they adopt pursuant to the new obligation on penalties.
Article 4 Article 4 of the Framework Directive dealing with appeals mechanisms has also been amended in order to respond to the finding of the review that appeals proceedings are unduly lengthy and the granting of interim measures suspending the effect of a decision of a national regulatory authority by the courts in the Member States were being used inappropriately to delay the imple- mentation of national decisions, usually against dominant operators, and therefore contributing to the hindering the development of the internal market and competition.
Member States must now ensure that appeals heard by a court, or other body if not a court, have the appropriate expertise to enable it to carry out its functions effectively and clearly in a timely manner. According to the current Article 4 appropriate expertise has to be available to the court hearing the appeal. The textual change from the present ‘shall have expertise available to it’ to the revised ‘shall have the appropriate expertise’ would suggest that Member States must establish either specialist courts to hear such appeals or ensure that members of the judiciary are trained in order to sit in specialist chambers to deal with the complex issues raised in many telecommunications appeals.
Set-aside restriction The discretion accorded to courts or bodies to set aside decisions of national authorities pending the outcome of an appeal is also to be severely restricted. The current wording provides that pending the outcome of the appeal should stand, unless the appeal body decides otherwise. This wording has been tightened. Under the proposed reformula- tion a decision of a national regula- tory authority stands unless interim measures are granted in accordance with national law. According to Recitals 10 and 11 of the proposed Directive amending Directive 2002/21 on a common regulatory framework which interpret the intention of the revised wording of Article 4, interim measures suspending the effect of a decision of a national regulatory authority should be granted only in urgent cases in order to prevent serious and irrepa- rable damage to the party applying for the measures and if the balance of interests so requires.
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September 2009 Volume 37 Issue 3
No delay tactics? In order to achieve greater consistency of approach, common standards should be applied in line with Community jurisprudence. Player strategy may change as a result. For example, the systematic appeal by dominant operators against all regulatory decisions of national regu- latory authorities imposing pro-com- petitive obligations, in order to delay compliance through the granting of interim measures suspending regula- tory decisions, is a feature of much of the telecommunications litigation in many of the Member States. But it is therefore likely to lose its utility as a litigation tactic with an essentially commercial purpose if the reform package comes into force.
Leadership? The brief analysis of the main measures designed to strengthen the enforcement system agreed in the reform package does not suggest that the new mechanisms will produce the leadership, coherence and coordination, let alone the regu- latory convergence and consistency desired by the Commission.
Complexity The new procedures, distribution of powers and obligations on the Commission, BEREC and the national regulatory authorities if anything risk introducing a level of complexity into the enforcement system that will play into the hand of the Member States who have consistently been opposed to strengthening the European level capability to ensure, through hard law powers, consistent enforcement of the rules. The preference of the Council to move to a system of co-regulation or negotiated regulation ensures that Member States, through their national regulatory authorities retain
the final say on the regulation of what they still consider essentially national telecommunications markets. The strengthening of the indepen- dence of national regulatory authori- ties, and a tightening of the rules on national appeals and remedies are potentially useful changes, but do not, in the end compel national regu- lators to regulate in a manner that gives primacy to the internal market objective as opposed to, or in prefer- ence to, the resolution of local tele- communications market problems.
Effective emphasis? The new emphasis in the reform package on promoting regulatory consistency by stressing the obliga- tion of national regulators to work together and assist the Commission, and, indeed, the BEREC to promote the internal market project does not guarantee success. The Commission is not accorded a leadership role in the new institutional balance; it can only issue recommendations. A recommendation in European law has no binding effect. Indeed the new institutional system and distri- bution of regulatory competence has introduced a new body, the BEREC, that arguably could become a signifi- cant obstacle on how the Commis- sion is able to perform its regulatory role. The Commission under the proposed new system has to provide reasons justifying why it has chosen to diverge from BEREC’s opinions and recommendations. BEREC could indeed become the protector of national regulatory preferences and therefore compete with the Commis- sion as a focal point of telecommuni- cations regulatory orthodoxy rather than positively assist the Commis- sion. BEREC could, in short, evolve into the Trojan horse of the Member States.
The Commission’s desire to shift the balance of institutional power by centralising a decentralised system of enforcement that was part of the re-regulatory bargain struck with the Member States in 2002 as a correc- tive against fragmentation and inco- herence has faced stiff resistance from the Member States. This fact more than any other explains the protracted negotia- tions that were required in order to reach agreement on the reforms and the balanced nature of the main provisions. The Commission is therefore denied an overtly leading role and hard law powers to ensure compli- ance with the main area of weakness in the current system. It now has a voice, but not the final say over the remedies adopted by national regulators. National regulators have now been given a potential powerful and independent voice on the regulatory preferences of the Commission.
Conclusion It is therefore tentatively con- cluded that the success of the revised enforcement model in light of the objective of strengthening shall depend on the extent to which the new BEREC operates. If it operates, not as a loose collec- tion of self interested national regu- lators locked into a logic of national market regulation and the protec- tion of national interests, but as the fulcrum agency, facilitator and driver of regulatory consistency and enforce- ment convergence it will arguably be an agent of market integration and Community single market building.
Francesco Rizzuto is Head of the Depart- ment of Law and Criminology, Edge Hill University, UK. The first part of this article appeared in Intermedia Vol. 37 No. 2

News brief

Intermedia Issue:
Vol 37, Issue 3
Issue Date:
December 2009
Marc Beishon Marc Beishon Former Editor, InterMedia

Vol 37, Issue 3 Features

Media ownership: lessons from the US 16.01.2020
Mature new media needs inventive business models 16.01.2020
INTELLECTUAL PROPERTY RIGHTS IN THE DIGITAL ERA 12.12.2009
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