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BROADCASTING POLICY AND NEW INTERACTIVE SERVICES
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MSU Io An Nflmotivo Action/Equal Opportunity Ira-titular:
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BROADCASTING POLICY AND NEW INTERACTIVE SERVICES IN
EUROPE AND ITALY

By
Michela Cimatoribus

A THESIS

Submitted to
Michigan State University
in partial fulfilment of the requirements
for the degree of

MASTER OF ARTS

Department of Telecommunication

1995

ABSTRACT

BROADCASTING POLICY AND NEW INTERACTIVE SERVICES IN
EUROPE AND ITALY

By

Michela Cimatoribus

This research assesses Italian broadcasting policy in the past and its future developments
in the provision ‘ of multimedia and interactive services. European Community
broadcasting policy is also analyzed in the light of the convergence of telecommunications
and broadcasting. Several examples of interactive trials are analyzed in the United States,
in Asia and in European countries. A special emphasis is placed on the roles and
interactions of different actors in the policy process.

This research is a case study and mainly uses data coming from Italian Parliament
proceedings concerning the evaluation of multimedia and interactive services, as well as
press commentaries. Scholarly papers and books are mainly used for historical economic
and policy analysis. European Union documents and Green Papers are analyzed in order to
identify trends in European Union policy.

According to consociational theory, the main actors involved in policy-making in the
Eur0pean Community and in Italy struggle to protect their own interests, while the general
public's interests are neglected. The result is policy-making in favor of a few large
companies and other institutional players. The introduction of new interactive services

may thus not be demand driven, but pushed by supply and/or other political interests.

To Sergio and my family

TABLE OF CONTENTS

INTRODUCTION

CHAPTER]:

CHAPTERZ:

THE HISTORY OF ITALIAN TELEVISION UNTIL 1990

The beginnings

The political and cultural aspects of early developments
The reform of 1975

The consolidation of private broadcasting

Programming

THE 1990 BROADCASTING ACT

Radio frequency planning and allocation

The Guarantor for broadcasting and publishing
Advertising

Antitrust measures

Licensing

The public broadcasting company

Cable television

The latest developments

Conclusion

page

11

14

18

18

19

2O

21

23

24

24

25

27

CHAPTER3:

CHAPTER 4:

CHAPTERS:

MULTIMEDIA AND INTERACTIVE SERVICES IN ITALY
The Parliament's initiative

The "multimedia revolution"

The Italian situation

Reforms needed in the telecommunications sector
The reform of radio and television broadcasting
Network infrastructure liberalization

Regulation

The reform bill of January 1995

Conclusion

MULTIMEDIA AND INTERACTIVE SERVICES IN OTHER COUNTRIES
The beginnings of interactive TV

US telco projects in interactive services

US cable operators' projects in interactive services

Interactive projects in Europe

Interactive services in Asia

Demand characteristics of interactive TV

BROADCASTING POLICY AND NEW TECHNOLOGIES IN EUROPE

Main actors and features of European broadcasting
and audio-visual policy

The evolution of European Community media policy

30

3O

32

34

36

38

41

42

43

46

48

48

50

54

58

59

63

63

66

New technologies: satellite, HDTV, cable

Early developments in telematics

ISDN

The role of other European institutions: the European

Broadcasting Union and the Council of Europe
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS FOR FURTHER

RESEARCH

The main actors

Recommendations for further research: a threat to democracy?

Recommendations for Italy

BIBLIOGRAPHY

69

73

75

76

80

82

88

92

95

LIST OF FIGURES

page

Figure 1: The governance structure of RAI 10

Figure 2: The regulatory process according to the reform bill of January 1995 45

INTRODUCTION

The Italian television industry has had a peculiar development ever since RAI
Radiotelevisione Italiana started broadcasting in 1954. As happened in most other
European countries, broadcasting was a public service and its control was in the hands of
the govemmentl. In the 19705, Italian courts opened the broadcasting sector to private
entrepreneurs and the legislature did not respond for several years. By 1990, when the
reform law was finally approved, the pattern had been established. The result has often
been called "the wild west" of Italian television. This has been a de facto public-private
duopoly that was simply sanctioned by the 1990 Broadcasting Act. Chapters 1 and 2
report the main developments of the Italian television sector and highlight the legislative
changes that were periodically approved in order to keep up with market evolution. One
of the most peculiar developments is the lack of cable television networks in Italy, at the
same time when other countries built them as ancillary to broadcasting. This thesis

explains this anomaly, which is particularly relevant for the main thrust of this research,

 

 

1 See chapter 1 for more details about the ownership and control of RAI. The terms "government" and
State" when referring to media ownership or control will be used as synonyms throughout this research,
u“less otherwise specified.

the development of interactive servicesz. The latter are being launched in several countries
(see chapter 4) and, especially in the United States, they will be mainly provided by cable
TV operators or alliances between telephone companies and CATV systems. The lack of a
cable TV infrastructure in Italy thus will either force the transmission of interactive
services over the existing telephone lines, or require the deployment of entirely new cable
networks.

Chapter 3 spells out how the Italian Parliament approached this issue and identified
the reforms of the Italian telecommunications and broadcasting sectors that will help the
"multimedia revolution"3 happen. Among the initiatives that were proposed, was an
interactive TV trial. In spring 1994, Societa' Finanziaria Telefonica (STET), the Italian
telecommunications holding company, announced an agreement with Bell Atlantic to form
an interactive TV venture and a test involving 2,000 Italian TV households was scheduled
for November, 1994.

The aim of this research is to assess the Italian broadcasting policy and the possible
future developments of Italian TV in the light both of its history and the latest
developments, which imply that heavy investments in broadband systems and services will
have to be made. European Community policy will also be analyzed (chapter 5), because
Italy's liberalization of telecommunications is heavily influenced by the 1998 deadline set

by the EC for the complete liberalization of all telecommunications services and
infrastructures, including cable systems. Past and present European Community policy and
the experiences of other European countries provide several examples of launches of new

teGhrrologies, such as videotex, teletext, ISDN, satellite TV and HDTV.

 

 

2 - Although the terms "interactive" and "multimedia" are often used as synonyms, they are to be
distinguished. Interactivity is concerned with two-way communication between distant locations and is
anerally used to indicate services such as vimo on demand, home shopping, home banking, games,
dlstfiance education, etc. "Multimedia" defines the convergence of different media in the same location. An
extunple is the CD-ROM, where text, audio and video images are stored on the same medium.

'8 term was used in the Bosco report (Bosco, 1995), a document that outlines the future information
society as envisaged by the European Community and adapted to the Italian framework. In this document
£1.13 reference to interactive, rather than multimedia services testifies to the confusion between the terms

mteractive" and "multimedia" (see note 2).

Research question 11. 1: What policies of European Union broadcasting regulate the
field of new telecommunication technologies?

Discussion: Broadcasting is substantially unregulated at BC level, but some attempts
to establish regional policies have been made. It is important to evaluate these policies and
relate them to domestic policies (see chapter 5). The focus will be on advanced media,
such as cable television, satellite television, High Definition Television, ISDN, interactive
services and the convergence of broadcasting and other telecommunication systems and

services.

Research question n. 2: Who are the actors, what are their interests and how do
they interact in the adoption of new technologies?

Discussion: This question is especially relevant in Italy, since the history of Italian
broadcasting has repeatedly shown a strong influence of private interests on policy-making
(chapters 1, 2 & 3). It is also important to analyze motivations and interactions of relevant
players at the European level, where many poliCies originate and impact on national
industries (chapters 5 & 6). The adoption of new technologies may be market-driven and
directly related to the general public's demand for new services; it may be the result of

particular interests' pressures or a mix of both.

Methodology

This is a case study. Italian Parliament proceedings will be analyzed concerning the
evaluation of multimedia and interactive services, as well as press commentaries and
reports by consulting agencies. Scholarly papers and books are only available until a few
years after the 1990 Broadcasting Act and will therefore mainly be used for historical

economic and policy analysis and for illustration of the debate on broadcasting policy in

4

other countries. European Union documents and Green Papers will be analyzed in order to

identify trends in European Union policy.

CHAPTER I
THE HISTORY OF ITALIAN TELEVISION UNTIL 1990

This chapter provides the historical background to the present situation of the Italian
broadcasting sector. Early developments and first attempts at reform are analyzed. The

general characteristics of programming are also highlighted.

The beginnings

Wireless and radio communications in Italy were first established as a state monopoly
in 1910. In 1924, during the Fascist era, the privately owned Italian Radio Union (URI)
obtained a six-year, renewable monopolistic concession on broadcasting, subject to
government censorship. URI was financed by fees paid by radio set dealers. In 1929, URI
was transformed into a semi-governmental company supervised by the state. During
World War H, government control was tightened. In 1944 RAI was founded in Southern
Italy as a counterpart to fascist-controlled URI. After the war, RAI was left with exclusive
broadcasting rights and its ownership was transferred to the Istituto per la Ricostruzione
Industriale (IRI), the government holding company for industrial enterprises‘.

RATS monopoly on broadcasting was extended to television in 1952. Regular TV
transmissions began in 1954, supported by license fees and, three years later, by
advertising revenues (Noam, 1987). The first nine transmission facilities covered 43% of
the population. Six years later (1960), TV signals reached 90% of the population. A 50%
Penetration of Italian households was attained in 1968. Programming began with 10 hours
per week, increasing to 30 hours by the end of the 19505. In the first year most of the
transrnission time was devoted to films. Later, opposition by film producers obtained

l‘egulations that drastically decreased the broadcasting of films on TV. In the first years of

\

4 For further details on the history of Italian broadcasting, see Storia della RAI. Trent'anni di televisione:
‘8. momenti, personaggi 1954-1983, Torino: RAI-Radiotelevision Italiana, Divisione affari correnti,

umentazione e studi, 1984.
5

6

TV in Italy, the most successful programs were quiz shows, the least expensive formula of
mass-appeal programming (Gambaro & Silva, 1992).

In 1961 a second channel was activated with programming that was not in
competition with the first channel. The latter was intended to cater to the large audiences
of families, while the second channel aimed at broadcasting programs with a higher
cultural value. In fact, during the Sixties, the audience share of the second channel was
always lower than 30% of the total. In the same decade, the diffusion of TV sets increased
fi'om 2.2 million in 1960 to 9.9 million in 1970. The households with TV receivers (or
penetration) increased from 16.6% to 62.5% (Gambaro & Silva, 1992).

The political and cultural aspects of early developments

Until 1975 control over RAI was fimrly exerted by the Italian government and,
specifically, by the Christian Democratic Party. Television was used as a means to create
political consensus. The Board of Directors and the executives were directly appointed by
the government. Besides a rigorous personnel selection based on political criteria, some
forms of censorship were used. This political domination was partially helped by the lack
of interest of the leftist culture toward television (Gambaro & Silva, 1992). The Catholic
Church and catholic intellectuals took control of television, both theoretically and
operationally. The political idea was to use TV as an extension of the evangelical mission
of the Church. Therefore, Italian television chose to play a pedagogical role, the role of
the enlightened educator. For several years, Italian television had a strong relationship
with the academy and the humanistic roots that characterized the national culture.

These political and cultural aspects were much more exacerbated in Italy than in other
European countries. They also reinforced each other because they both lacked the idea
that there was an exchange between broadcaster and audience. The main thrust was a
model which held that the supply of TV programs was not to be based on market success,

but was responsible only toward (1) itself, (2) to the cultural elites it was related to and (3)

7

to the political elites that controlled it. The lack of alternatives for consumers and of
competition between channels are obviously both an assumption and a corollary of this

model (Gambaro & Silva, 1992).

The reform of 1975
By the end of I the 1960s, the television monopoly and the RAI broadcasting model

were challenged by several factors: the evolution of audience demand, the redefinition of
the political power, the interests of TV manufacturers who were worried about the
transition toward color TV, and the growing demand of advertising time on TV.

At the beginning of the 19703, consumer segmentation was consolidated, different
social behavior and lifestyles increased the demand for diversity in TV broadcasting and
for entertainment programming. This evolution of demand was based on the strong
growth of private consumption5. After the post-war reconstruction and the economic
boom of the Sixties, the Italian society was becoming more segmented and differentiated.

The political world was also subject to a process of redefinition of its equilibrium.
After the 1968 anti-establishment activitiesfi, the strengthening of the labor unions and the
electoral growth of the political left, the Christian Democrats' exclusive control over RAI
was less accepted and attacked by several sides, not only by the leftist opposition. In other
countries, pressures toward the elimination of broadcasting monopolies were related to the
need for collective welfare, for growth of the number of channels in order to increase
viewers' choice, and to the reinforcement of the audiovisual industry through technological
innovation. In Italy, the pressures for change were nminly geared toward the redefinition
of the political equilibria inside RAI. In this phase, the political-institutional polarization of
RAI and the Italian television culture favored the political aspect of changes in TV and

 

5 +48% in real terms yearly between 1955 and 1969.

6 In the late 1960s there were student protests all over Europe that spread over to factories and were meant
to lift state control over economic and social institutions. The main institutional results in Italy were a
liberal reform of the educational system and the strengthening of labor unions.

8

neglected the institutional changes fostered by economic and social forces that would later
allow and sustain the development of private television.

At the end of the 19603 other countries began regular color TV broadcasting and the
evolution of TV sets from black-and-white to color spurred the Italian TV manufacturers
to lobby for the introduction of color transmission to revitalize the market and keep
production high7. Color transmission was finally introduced in 1976.

The first signs of saturation in some consumer markets and some early attempts at
product differentiation caused an increase in the demand for advertising time slots.
Television had become the most important unifying mass medium in the Italian market,
while the diffusion of printed material was more limited and not commercially oriented.
Between 1970 and 1975 the advertising budget on TV increased from 33 billion to 61
billion lire, twice as much as the press advertising expenditure (Gambaro & Silva, 1992).

All these factors caused the RAI monopoly to be questioned. Traditional alternatives
to RAI lay across the border. Monaco's Tele-Montecarlo, a private broadcaster and the
Yugoslavian Tele Capodistria broadcast programs in Italian for minorities. In the mid-70$,
these stations were relayed into large parts of Italy from across the border.

In 1972, the first national challenge to the RAI monopoly came from Tele-Biella, a
tiny cable operator which provided programs to approximately 100 subscribers in Biella,
near Turin. Its programs were intended to "better inform" the local audience during
elections and to counter the entrenched local political hierarchy. The government
attempted to shut Tele-Biella down, but a local judge ruled in its favor, because it fulfilled
a local information function that had not been addressed by RAI. When the government
moved to close the system down anyway, the case went before the Constitutional Court,
which permitted the operator to continue operating (Noam, 1987).

The subsequent Constitutional Court decisions (1974-1976) which addressed this

issue, reaffirmed the state monopoly over TV broadcasting, but declared the government's

 

7 After 1972 the growth rate of black-and-white TV sets decreased.

9

attempts at dismantling the foreign stations' relays illegal. They also limited the state
monopoly over broadcasting to national transmission, thus allowing the development of
local private TV stations8 (Gambaro & Silva, 1992). The involvement of the judiciary was
a distinctive feature of this period, due to the permanent inability of Parliament to pass
new legislation. There were endless quarrels and disputes between RAI and the private
broadcasters, and between private entrepreneurs themselves. The main actors found no
other way than resorting to the judiciary. Sometimes the judges themselves took action
unilaterally to halt illegal practices of television, thus acting as a regulator of the
broadcasting system (Mazzoleni, 1991). I

Finally, in 1975, Law 103 sanctioned the reform of RAI. Broadcasting was defined as
an essential public service and reserved to the state. This did not necessarily mean that it
had to be operated by the government. Concessions could be given to state-owned
companies for the provision of service. The main aims of the system were: independence,
fairness, openness to various political, social and cultural forces. This bill took the control
over RAI out of the hands ’of the government and entrusted it to Parliament, which
exercises it through a special "Committee of Vigilance" of forty representatives of all
political parties, proportional to their electoral strength. The Committee sets guidelines for
the implementation of the broad principles specified in Law 103 and for a balanced
scheduling of programs. It directly controls party broadcasts, it indicates general
requirements for the content of advertising in order to protect consumers and it supervises
audience research. Broadcasting is contracted to a public-owned company, RAI-Radio
Televisione Italiana, with an agreement renewable every six years (Mazzoleni, 1991).

RAI runs three TV channels and three radio networks. The TV channels are not

distinct entities, but functional divisions coordinated by a Director General. RAI is

 

3 The term "local" is related to areas of not more than ten million potential viewers and usually coincides
with the administrative subdivision of the Italian territory into regions. Each region is convered by one or
more local TV stations, depending on its population. One local station can also cover more than one
region or adjacent areas belonging to different regions.

10

governed by a board of sixteen administrators, appointed by the Committee of Vigilance.
Each of the three television channels (RAI UNO, RAI DUE and RAI TRE) enjoys
considerable autonomy in production, programming and scheduling policies. They all have
a news department. The third channel, RAI TRE, was started in 1979 and it is partially a
regional channel. It produces both national and regional news, while RAI UNO and RAI
DUE only broadcast national news.

Through affiliated companies, RAI also controls publishing activities (ERI), sells
records and video cassettes (FONIT CETRA) and programs (SACIS) and collects and

sells advertising time (SIPRA).

 

Parliament

 

 

 

 

Comrrrittee
of
Vigilance

 

 

 

appoints

 

l RAI Board of Administrators I

lRAIl IRAIZ IRAI3 I FONIT ISACIS l ERI I SIPRA

CETRA

 

 

 

 

 

 

 

 

 

 

 

 

Figure l: The governance structure of RAI.

RAI is financed from three sources: an annual license fee per household, advertising

and the business exploitation of related activities. The license fee is set by the

11

govemment9, and increases are not easily granted, because they are politically unpopular.
Due to tax evasion, about 25-30% of households do not pay the fee.

Law 103 also allowed and regulated the establishment of mono—channel cable
television operators in restricted areas. The limitation of potential viewers to 40,000 and
strict regulations on internal production show that the economic nature of cable TV was
not understood. These limitations, clearly set for the protection of broadcast television,
and the high capital investment cost for the installation of cable networks discouraged
cable TV development. The main feature of cable TV is in fact the distribution of external
programs and a multiplicity of channels, which are needed to justify the high fixed
investments.

Private entrepreneurs thus demanded more freedom and addressed the Constitutional
Court again. In 1976, it acknowledged the legitimacy of private broadcasting on a local
scale (Mazzoleni, 1991). The need for costly cable transmission technology thus declined
and, by 1980, hardly any of the hundreds of private television stations were transmitting
via cable. Ironically, cable TV, which had provided the opening wedge for private media,

was cut out of subsequent developments of Italian television (Noam, 1987).

The consolidation of private broadcasting

Thanks to the partial liberalization of the 1976 Court judgement, about 700 television
and 2500 radio stations were established in a few years all over the country (Mazzoleni,
1991), but no follow-up legislation, regulatory system or licensing provisions were
provided by Parliament. Frequencies not used by RAI were simply occupied, largely on a
first-come, first-served basis. The major Italian political parties expressed tacit agreement
with the fast-paced growth of television and radio stations. The smaller political parties
viewed private broadcasting as an opportunity to get their message on the air for the first

time. The Communist Party, for example, set up a chain of radio and television stations in

 

9 It was Lire 156,000 (about 3 100) in 1994 for color TV.

12

the major cities. The leading press publishers, who once opposed television because it
subtracted advertising revenues, were now largely in favor of it, since many of them had
entered broadcasting (Noam, 1987).

After several years of local operation, three major broadcasting enterprises established
in 1981-82 the first nation-wide "networks". These were groupings of several local
stations linked with common scheduling patterns and exclusively funded by advertising.
However, national broadcasting was illegal and the Constitutional Court (1981) prohibited
any electronic link-ups between stations. Therefore, the "mother" station had to prerecord
cassettes of the programs, including commercial breaks, and physically transport them to
the affiliated stations for simultaneous transmission. This system obviously prevented any
live nation-wide news broadcasting by private stations (Mazzoleni, 1991).

In the fall of 1984, several local courts ruled that this system infringed the lirrritations
on local broadcasting, because it created de facto national networks and private networks
had to switch off their signals in certain regions, including Rome. Finally, the need for
legislation could not be further ignored and the Minister of Posts and Telecommunications
prepared a bill that provisionally allowed the networks to beam their signals beyond local
boundaries. The bill still prohibited private national news programs, but permitted local
and regional news. The government decree (labeled "Berlusconi's Decree" by the
opposition) was converted into Law 10 by Parliament in February 1985 and was renewed
in August, but eventually expired at the end of 1985. No further renewals were effected by
the government. A new reform bill was supposed to be approved in 1986, which would
reaffirm the state monopoly over nationwide broadcasting. It would. also be the first
official legalization of the creation of a rrrixed system of public and private broadcasting.
Private operators were to be obliged to broadcast 25% of domestic or European
Community produced programs (40% after July 1986). A licensing system would be
introduced for private broadcasters, with special authorizations for nationwide networks.

Two regulatory bodies were to be introduced, one to process fiequency licensing and one

13

to enforce content regulations. The latter concerned the amount of internally produced
programs"). Advertising regulation would also be introduced for private stations.
Throughout 1986, the government repeatedly declared that the reform bill was ready, but
it was never presented to Parliament (Noam, 1987 and Mazzoleni, 1991).

Three major private networks were created in 1982. The first one was Canale 5,
owned by Silvio Berlusconi's Fininvest. A few months later Italia 1 and Rete 4 appeared.
They were both owned by large publishers, Rusconi and Mondadori respectively. These
entrepreneurs did not last long in the broadcasting business and soon sold their networks
to Berlusconi, who became in 1984 the only private broadcaster that could effectively
compete with RAI (Gambaro & Silva, 1992). Among the reasons for the failure of Italian
publishers like Rusconi and Mondadori in television, Noam (1987) identifies the lack of
television know-how, the inability to interconnect and inadequate financial resources.
Berlusconi, on the other hand, invested large amounts of money into the TV business. He
spent billions of lire on stars and technology and established a strong reputation for
anticipating audience tastes. He kept advertisers happy with low rates and wooed viewers
by offering less ad time per hour than other channels. He introduced innovative ways of
charging advertisers, especially small and medium-sized sponsors. He also had good
political connections with then Prime Minister Bettino Craxi, a Socialist, even though he
personally leans toward the right.

Several other minor private entrepreneurs who did not exit the market survived in
marginal positions and never were a real threat to the public broadcaster. After 1985 the
battle between RAI and Fininvest for advertising money and audience caused a sharp
increase in investments in Italian TV programming production, in imported fiction and in

co-productionll of movies that would later be shown on TV. By 1990 the duopoly

 

‘0 Ten percent for local stations, twenty percent for national networks, fifty percent for RAI. The term
"internally produced" indicates programs that were entirely produced by the station, not purchased from
other producers.

11 Co-production was carried out between film producers and TV networks. These programs, generally
movies, were first exhibited in theatres and later shown on TV.

14

situation was largely consolidated. RAI and Fininvest controlled three networks each.
Fininvest collected about 58% of the total TV advertising expenditure and RAI collected
about 30%. Although the Fininvest networks obtained larger audience shares than RAI in
1984-1985, RAI audience shares in 1990 were normally ten percentage points above
Fininvest's, both in prime time and in the daily average. In a pure market situation, RAI's
larger audience shares would entail larger advertising revenues than Fininvest's. The
mismatch between audience shares and advertising shares is due to the limitations imposed
on RAI, that prevent it from earning all possible revenues. This limit was originally
established to protect the printed press's advertising revenues and it caused advertisers to
direct their demand to the private networks (Gambaro & Silva, 1992).

Besides RAI and Fininvest, in 1990 there were ten minor networks, including two
foreign ones”. They all survive because they have agreements with the major networks to
avoid predatory policies. The minor networks sell advertising time through Publitalia
(Fininvest's concessionary) and SIPRA (RAI's concessionary) and buy a large part of their
programming fi'om the major networks. The collection of advertising revenues and the
production of programs are clearly stronger entry barriers than the scarcity of fiequencies

in preventing new networks from growing to an adequate size.

Programming

The Italian public broadcasting service is based on independence, fairness and
pluralism The pattern of scheduling thus is characterized by the need to establish a
balance between informational programs, educational programs and entertainment. As
stated above, the beginnings of RAI were strongly marked by a stress on educational
programs. The advent of private broadcasting, both on a local and on a national level, had

some effects on the scheduling of programming. Wolf (1989) identifies three nrain effects:

 

‘2 The rrrinor networks are: Italia 7, Junior TV, Cinquestelle, Videomusic, Rete A, Telecampione, Odeon
TV, Euro TV, Capodistria and Telemontecarlo.

15

"1. A progressive lengthening of the broadcasting day, beginning with an
extension into the late evening and followed by early afternoon and morning
programming.

2. An increase in the number of imported programs (films, made-for—TV movies,
animation).

3. An increase in the amount of informational material such as news and current
affairs, not only on RAI [...] but also on the private networks."

The increase in the number of broadcasting hours caused a parallel increase in the
amount of advertising, especially on the private channels. On the supply side, the number
of broadcast hours on RAI rose from 5,950 in 1976 to 9,225 in 1980, 14,500 in 1986 and
15,900 in 1987. Fininvest broadcast 19,500 hours in 1986 and 19,650 in 1987. Within ten
years, the total supply of programs rose from about 6,000 hours to over 34,000.
Advertising slots for RAI were 40,000 in 1983 and over 60,000 in 1987. The three
Fininvest networks carried 284,800 ads in 1987 (Wolf, 1989).

On the consumption side, the mixed system exposed viewers to an overabundance of
programming, interspersed with advertising messages and distributed over the whole day.

The second consequence of the public-private system is the huge amount of imported
programming. At the beginning, private stations broadcast almost only imported material,
especially US fiction. In the late 19805 the total amount of imported programs was 71%,
compared with 17% for France and 60% for Kenya (Mazzoleni, 1991). There were
absolutely no legal obligations for stations to produce their own programming and the '
prices of international programs skyrocketed as a consequence of this "race". The result
for the networks was an enormous increase in debt, especially for RAI, which had a ceiling
on its advertising revenues and suffered losses due to tax evasion.

The third effect of the competition between public and private networks lies in the
strategic use of program scheduling. This is particularly evident in the field of news and

public affairs. While private networks were not allowed to broadcast live news reports,

16

RAI greatly increased the number of news bulletins from two per day at the beginning to
nearly 25 in 1989, with at least 14 new bulletins being introduced in the late 19805. The
news was used as a "strategic product" to harness RAI's competitive advantage over the
private networks and to establish public television's "distinctiveness" across the schedules.
While in the early times of RAI the news served as a political tool for the mling elites,
competition between public and private TV assigned it a role of corporate image-making.
At the same time, the format of news programs changed, becoming more market oriented.
The same happened for current affairs programs. Several new programs were developed
aimed at specific market sectors and grouped around themes related to particular interests.
New "journalistic" genres developed which indiscrirrrinately mixed formal aspects of
different genres (fictional reconstruction, junk-TV, TV realism, etc.). The emphasis was
placed on dramatic and spectacular effects, the audience was lured into viewing by
creating scandal and getting programs talked about (Wolf, 1989).

At the same time, there were developments within the two main groups, the three
RAI networks on one side and the Fininvest networks on the other. The RAI channels
were in competition with each other for a long time in the 19705 and early 19805, until the
threat of private national networks became clear. The political system of staff appointment
made it clear that RAI UNO was under the influence of the Christian Democrats, RAI
DUE was run by the Socialists and RAI TRE was influenced by the Communists. After
1982 RAI UNO and RAI DUE started to adopt more integrated programming policies and
somewhat reduced their rivalry. Political influence and rivalry were still very strong and
brought about a real power game over the election of the Governing Board. Finally, in
1986 a balance of powers was found: the presidency of RAI went to a Socialist and the
general management to a Christian Democrat, while the channels resumed their
organizational and political distinctness and rivalry (Mazzoleni, 1991).

In the 19905 the characterization of the RAI channels can be broadly described as

follows. RAI UNO provides information and entertainment for large and popular

17

audiences, while RAI DUE focuses on more elitist programming, with a stronger emphasis
on social issues. RAI TRE concentrates somewhat on cultural issues and political satire.
The three main private networks also stopped competing after they were all acquired
by Fininvest. They target different audience groups: Canale 5 is aimed at a general public,
much like RAI UNO. Rete 4 targets female viewers and Italia 1 is directed at a younger
public. This distinction only applies to a portion of the daily scheduling, while the rest is
undifferentiated. According to Mazzoleni (1991), "failure to specialize further is mainly

due to uncertainties about the future of Berlusconi control over all three networks".

CHAPTER 2

THE 1990 BROADCASTING ACT

This chapter completes the historical overview of Italian broadcasting and analyzes the
1990 Broadcasting Act. The latest proposals for broadcasting reform that were presented
to Parliament in 1995 are also discussed.

After a long debate, Parliament approved a new Broadcasting Act (Law 223/ 1990)13
in August 1990. While this act was intended to introduce a new discipline into the Italian
broadcasting industry, it mainly sanctioned~ the RAI-Fininvest duopoly. During
Parliamentary discussions, left-wing Christian Democrats made it clear that they did not
support the bill's favor to Fininvest and they withdrew five senior ministers from the
government after the bill was approved (Rao, 1991).

The first article reaffirrns the principle of general interest of broadcasting. The main
principles that govern broadcasting are pluralism, objectivity, the completeness and
impartiality of information, the openness to opinions, and to various political, social,
cultural and religious tendencies. For the first time, it is stated that the broadcasting
system is made of public and private subjects”. Broadcasting is entrusted to the public
service concessionaire (RAD and can be carried out by private entities through a

concession or an authorization.

Radio frequency planning and allocation
The national radiofiequency repartition plan is prepared by the Minister of Posts and

Telecommunications and is revised every five years or at the Minister's initiative. It

¥

13 It is also called "Mammi' Law", from the name of then Minister of Posts and Telecommunications,
Oscar Mammi'.
‘4 The previous law 1011985 stated that broadcasting is reserved to the state.

18

l9

identifies the frequency bands that can be used by the various telecommunications
services.

The fiequency allocation plan determines service areas and user areas, based on the
population served, on its distribution and on the geographic, socio-economic and cultural
conditions of the areas. They generally coincide with the political-administrative partitions
of the Italian territory into regions.

National broadcasting must cover at least 60% of the country, while local
broadcasting covers at least 70% of the user area assigned to the station. Thirty percent of
the total TV programs and 70% of the total radio programs broadcast in every user area
must be local transmissions. The frequency allocation plan is also revised every five years

or at the Minister's initiative.

The Guarantor for broadcasting and publishing

While the Minister of Posts and Telecommunications manages the radiofiequency
allocation and has the power to issue and revoke broadcasting licenses and to issue
administrative sanctions, a Guarantor for broadcasting and publishing is established. He or
she is proposed by the Chairpersons of the House of Deputies and of the Senate and
appointed by the President. S/he must be a former judge of the higher courts, a university
professor or an acknowledged expert in the mass media sector.

The Guarantor is responsible for keeping a national register of all broadcasting and
publishing companies. S/he examines the broadcasters', programme producers' and
distributors‘ budgets as well as those of advertising companies. In the case of violation of
the law, 5/he can issue administrative sanctions or propose the revocation of licenSes. The
Guarantor also monitors the rating system.

The 1990 Act thus created a "supervisor" for the broadcasting/publishing industry,
that replaced the previous Guarantor for publishing, created in 1981. The monitoring of

broadcasting and publishing are now united under one authority.

20

Advertising

A large part of the Mammi’ Law (articles 8 and 9) is devoted to advertising. As a
general rule, advertising must not offend personal dignity and encourage racial, gender or
ethnic discrimination. It must not encourage behavior that damages health, security and
the environment. Advertising must not damage children morally or physically, and it is not
allowed to interrupt cartoons.

Advertising must be easily recognizable as such and be separated by other programs
by optical or acoustical means.

In addition to commercial breaks before and after programs, there can be one break in
theatrical plays, films, operas and musical programs which last less than 45 minutes.
Programs that last less than 110 minutes can have three commercial breaks and longer
programs can have four breaks. The Guarantor can appoint a comrrrission to determine
works of artistic value, educational and religious programs that cannot be interrupted by
advertising.

The advertising of medicine or medical treatments is forbidden and programs cannot
be sponsored by companies whose nrain activity is the production or sale of tobacco,
spirits, medicine or medical treatments. Sponsored programs are considered advertising
and account for 2% of the daily advertising allowance. RAI cannot allocate commercials
to more than 4% of its weekly programming time or 12% of each hour. For national radio
networks the limit is 18% each hour and for local radio 20% each hour. Private national
TV networks can allocate to advertising up to 15% of the daily programming time and
18% each hour. Private local TV stations cannot exceed 20% of each hour and 15% of the
total programming time of the day.

Local advertising can only be broadcast by local stations, national networks must
transmit identical commercials in the whole country.

Sponsors cannot influence the contents of programs and must be clearly identified at

the beginning or at the end of the program.

21

Every year the Prime Minister sets the maximum lirrrit for advertising revenues for
RAI in the following year. Public administrations must allocate the private local broadcast
media at least 25% of their advertising budget. The Prime Minister decides messages of
social interest that the public broadcaster is obliged to transmit, with a lirrrit of 2% each

hour and 1% each week.

Antitrust measures

Law 223 approaches antitrust issues with an eye to media cross-ownership. Owners
of newspapers with at least 16% of total annual circulation cannot own national television
networks. They can own one national network if their newspaper circulation exceeds 8%.
If their circulation is less than 8%, they can have up to two national TV concessions.

No one can control more than 20% of the total mass media resources or more than
25% if at least two thirds of their revenues come from the mass media. One person cannot
control more than 25% of the total number of national radio or television concessions, and
in any case cannot exceed three. This nrle basically confirmed the RAI-Fininvest duopoly
and was later declared unconstitutional by the Constitutional Court”, because it does not
promote pluralism (Cherchi & Mele, 1995). In 1990, the total number of networks was
supposed to be twelve, of which three would be public and nine private. The Minister,
Mammi', prepared a plan for fifteen networks. A new law (n.422/ 1993) established a total
number of eight networks, which would reduce the number of concessions for a single
owner to two. The latter has surprisingly not been declared unconstitutional by the Court,
although it can hardly be said that it promotes pluralism. The antitrust measures of Law
223/1990 have been enforced only partially, because the concessions came as late as 1992
and for six private networks only, without a fiequency allocation, as was stated in the law.

One reason for the delay lies in the replacement of the Republican Minister Oscar Mammi'

 

‘5 Verdict 11. 420/1994.

22

with Socialdemocratic Carlo Vizzirri in that period. Local TV and radio stations have not
yet been granted their concessions.

Another provision that has not been enforced was the 20% ownership limit of the
total mass media resources for a single subject. Lack of clarity in the definition of what
was meant by "mass media resources" made it impossible to enforce the limit. According
to former Minister Mammi' (Cherchi & Mele, 1995), the main problem in determining
limits to network ownership is not the number of networks, but audience. He recently
proposed a ceiling of 10% to ownership of media companies, so that the latter would be in
the hands of a large number of investors. He also proposed to make the Guarantor a
collective organ instead of a monocratic one. It should be composed of five people, three
of whom elected by the House of Deputies and two by the Senate. Last, but not least,
Mamnri' would limit commercial time slots for owners of more than one network, instead
"of setting a ceiling to advertising revenue, because it could be easily eluded, thus distorting
the market mechanism (Cherchi & Mele, 1995).

The 1990 Law further considers cross-ownership issues between broadcasters and
advertising companies. If the latter are controlled by a broadcasting company, they cannot
collect advertising for more than three national TV networks or two national TV networks
and three local networks or one national networks and six local networks.

Local broadcasters can control, in different areas, three TV stations (four in
Southern Italy) or seven radio stations“. Only one local radio or one TV license will be
awarded to the same person in each area, but TV operators can also obtain a radio license
if there are fewer applicants than frequencies available. Cable systenrs or pay-TV services

count as licenses for the purpose of anti-trust rules.

 

“5 Radio stations can be adjacent and air the same programs if they do not serve more than ten million
people.

23

Licensing

Licenses last for six years and can be awarded to Italian and EC citizens or non-EC
citizens whose countries allow reciprocity. Licenses cannot be awarded to state bodies,
banks or financial corporations.

Private local broadcasters must broadcast for at least eight hours a day and sixty-four
hours a week. National networks must broadcast at least twelve hours a day and ninety
hours a week. National broadcasters must transmit daily newscasts.

A group of local stations that want to broadcast programs simultaneously must obtain
an authorization from the Minister of Posts and Telecommunications. They cannot
broadcast simultaneously for more than six hours daily and they are considered local
networks. The latter is an intermediate situation between national networks and single
local stations. Groups of local stations are frequently labeled as "circuits" (Gambaro &
Silva, 1992) and they represent a way of acquiring part of the national advertising budget
that has been traditionally controlled by the major networks (especially the duopoly RAI-
Fininvest). A circuit can also afford programming that would be too costly for a single
local station. On the other hand, the affiliation to a circuit affects the local identity of a
station as opposed to national networks. The local station loses autonomy in the
management of broadcasting time and depends more or less on the circuit it belongs to.
One way of keeping a local identity is to invest in local information and news, although
this type of programming is expensive.

Private stations and networks are required to pay a yearly license fee, but the amount
is very small: five million lire (approximately USS 3,000) for local radio stations, twenty
million for local TV stations (approx. US$ 12,000), five million for every area served for
national radio stations and twenty million for every area served by national TV networks.

A yearly tax of 25% of the above fees is also due.

24

Up to 25% of the concessions in each area can be given to private foundations, non
profit associations or cooperatives for community broadcasting. For all broadcasters,
concessions are allocated according to objective criteria, like economic viability, quality of
programming and technical capacity, past experience in the market, quantity and quality of
self-produced programs (especially news). For local concessions, at least 20% of weekly

programming must be local information/news and non-commercial local issues.

The public broadcasting company

The public broadcasting company, RAI, is allowed to operate three TV networks and
three radio networks, plus one radio network devoted to the broadcasting of parliamentary
proceedings. The board of directors is still appointed by the Committee of Vigilance.

RAI must broadcast at least 51% European programs”. Italian programs must be at
least 50% of the European programs and at least one fifth must have been produced in the
last five years.

Each household must pay a yearly license fee.

Cable television

The Mammi' Law does not directly address the issue of cable television. It only
instructs the government to make a new law that modifies the 1975 law on cable
television. The main principles stated by Law 223/1990 are:

1. The transmission of programs by mono or multichannel cable is subjected to
authorization by the Minister of Posts and Telecommunications.

2. The duration of the authorization, the requisites to obtain and the obligation of
authorized subjects are to be fixed according to the ones established for broadcasting

concessions.

 

‘7 It was 40% until 1993.

25

3. Cable TV operators must use public telecommunications infrastructure. If no public
infrastructure is available, the installation and operation of private networks are to be
subjected to concessions.

4. The authorized subject will have to pay a fee and a governmental concession tax
the amount of which is to be fixed in correspondence with broadcasting fees.

The expected law on cable TV was never approved, thus impeding once again the
development of the sector. A 1991 decree (2.22.1991, n.73) on cable TV introduced
further principles for the regulation of cable TV. Concessions to private operators can
only cover local areas, they have a duration of twenty years and can be renewed. The
authorization to transmit cable programming was subjected to the same antitrust principles
established by the Mammi' Law for broadcasting. According to the decree, the
government should specify the definition of "local" areas, the requisites required from
applicants for concessions and the technical characteristics of the service. The required
government specifications were never established and the rules established by the Mammi'
Law for broadcasting still hold for cable TV.

The latest developments
In 1994, some political groups, both from the right and from the left, decided to
challenge the Mamrrri' Law and proposed five referenda to the judgement of the
. Constitutional Court, which judged four of them acceptable: The Northern League, a
rightist party, proposed the elimination of the law that assigns the public TV service to a
publicly held company. This referendum would allow private ownership of the public
broadcasting company. Leftist groups proposed to abolish the rule according to which
one subject can own more than one national TV network. This would clearly imply a
divestiture of two of Fininvest's networks and, possibly, of RAI's networks, too. Leftists
also wanted to reduce the number of commercial breaks during films or theatrical plays

and to eliminate the possibility for advertising concessionaires to work for three national

26

TV networks. The only referendum that was not admitted wanted to abolish advertising
on RAI (Menghirri, 1995). The vote on June 12 was a "no" to all issues but the one on
RAI's ownership. The sale of shares to private investors is now allowed. The duopoly of
RAI and Fininvest remained unchallenged as far as number of networks that can be owned
and advertising.

As usual, the need for a more comprehensive legislative intervention is clear and was
only made more evident after the referenda. These are, according to the Italian
Constitution, only admitted to abolish laws, not to create new ones. Parliament will
therefore be called to intervene and produce a new reform of the television sector in Italy.

In May 1995, a few weeks before the referenda were voted and in order to avoid
them”, a new bill for the reform of broadcasting was presented. Its 35 articles redesign
the entire sector. At the end of a transition period until 1998, private broadcasters would
only be allowed to own one national broadcasting concession (two in 1996) and the public
service would be entrusted to a national network funded by advertising and a "federal"
network funded by a license fee. RAI would have to sell to private investors at least 20%
of one network by 1996 and 80% by 1998. Both public and private broadcasters would be
allowed to own cable and satellite networks and private broadcasters would be able to
control both daily and weekly newspapers. In order to address antitrust issues, private
concessionaires would not be allowed to control more than 25% of all economic resources
of the television sector (advertising, telemarketing, sponsoring, public funds and revenues
fiom pay-TV). If they also control daily and weekly press companies, the limit is 15% of
the total resources.

For cable TV the country would be divided into areas with a maximum of 500,000
hook-ups (or terminal connections). The installation of cable networks in each area would

be allocated through bidding procedures by the Region in which the area is located.

 

‘3 In the Italian system, a referendum abolishes a law or parts of it. If a referendum is approved by the
Constitutional Court and them that law is abolished or amended by Parliament before the vote, the
referendum has no further reason to take place.

l3

27

According to current law, STET is the only operator authorized to wire the whole
country. This new rule would therefore decentralize the decision process.

The bill also includes several institutional reforms: the Ministry of Posts and
Telecommunications would become Ministry of Communications. The Parliament
Committee of Vigilance would be replaced by a committee composed of ten deputies and
ten senators appointed by the Chairpersons of the two Chambers. The Guarantor for
broadcasting and publishing would be a collective body composed of two comrrrittees of
four members each, a chairman and a council (including members of the two committees
and the chairman). Members of the two committees would be elected by Parliament for six
years. The chairman would be elected alternatively by the Senate and by the Chamber of
Deputies with a two-thirds majority. This Authority would have larger powers than the
Guarantor's, including issuing broadcasting concessions (Ecco l'Antitrust..., 1995). One of
the two committees would regulate networks and infrastructure, the other one would be
responsible for services and products (Mazzocchi, 1995). The submission of this bill could
not avoid the referenda, because after its presentation to Parliament no decision was made

as to its approval or refusal.

Conclusion

Law 223/1990 was the first comprehensive attempt at regulating the television sector
in Italy after private broadcasters started operating on the basis of self-imposed rules. This
situation has been appropriately called the "wild west" of Italian television. This law is
nevertheless still the result of a compromise between different powers, it is divided
between the idea of television as a public service and television as consumer
entertainment. On the one hand the law underlines the role of advertising and regulates it,
that is, it recognizes the existence of commercial television. On the other hand, it is

worried about defending pluralism and public service. This concern dictated the creation

28

of the Guarantor for publishing and broadcasting and the introduction of antitrust
measures, although they are not very strict, especially in the TV market.

This law does not promote competition either, because it essentially confirms the
RAI-Fininvest duopoly. There is an a-priori limitation of the total number of national
networks and of the number of local concessions allowed for .each subject. Most of all,
there is no legislation to promote the development of cable television, that could provide
competition to broadcasters.

As far as advertising revenues are concerned, the law imposed a low ceiling on RAI
both for time and revenue. The regulation of sponsored programs and advertising on
private channels is more permissive than what was established by the corresponding EC
Directive 89/552. This allows private broadcasters high profit margins, while the annual
license fees are extremely low.

Although the law requires private television to follow the principle of pluralism and
objectivity as well, the main requirement of pluralism, that is the existence of a large
number of networks, is not promoted.

With respect to the public broadcaster, Law 223/1990 does not introduce any
substantial changes. It maintains the same number of channels and sources of funding and
no efficiency controls have been introduced. The latter have been increasingly needed after
. the mid-eighties, when the RAI budget went from a slightly positive to an increasingly
negative balance. This was mainly due to high labor costs and the competition with
Fininvest, that caused a sharp increase in input costs, such as foreign programs and stars.

The regulation of local broadcasting is more restrictive than that of national networks.
Programming rules (minimum transmission hours and obligation of providing local news)
are rather strict, while advertising time is little more than what is allowed on national
networks. Considering that local spots are much cheaper and quality programming costs

are high, the economic space for local broadcasters is not very large. On the other hand,

29

the law is more permissive as far as media cross-ownership at a local level is concerned.
The limits set for national networks and newspapers are completely absent for local media.

On the whole, this law seems to intend to consolidate the existing situation, more than
introduce new principles and/or rules. It does not provide any policy indications for the
development of new technologies such as cable TV, pay TV and satellite TV.

The 1995 bill is definitely more innovative, especially in its ownership limitations,
which would entail the divestiture of two of Fininvest's networks and one of RAI's.
Another important issue, cable TV, is treated with a decentralized approach, as opposed
to STET's monopolistic ownership and operation of the telephone infrastructure. As far as
regulation is concerned, the proposed shift of powers from the Ministry to a collective
Authority would mold the Italian system in a way that is similar to the US model. The
Federal Communications Commission is also a collective agency and it is dependent on
Parliament. Further considerations on the form of regulation to be adopted in Italy will be

made in the next chapter.

 

CHAPTER 3

MULTIMEDIA AND INTERACTIVE SERVICES IN ITALY

This chapter evaluates the present situation of the Italian telecommunications and
broadcasting sectors in the light of the "multimedia revolution". The most urgent reforms
are identified and the January 1995 bill is analyzed. The latter is the result of a Senate
inquiry on multimedia services that was carried out in 1994.

The Parliament's initiative

In August 1994, the Senate Commission for Public Works and Communication
deliberated an inquiry on multimedia services. From September to November of the same
year several experts and representatives from a number of companies and associations19
were invited to express their opinions to the Commission.

The Commission's initiative was based on the recognition that digital technology is
determining a convergence and integration process among the different sectors of the
telecommunications industry, television and information technology, which in the past
operated distinct networks and services. This process is leading to the global
interconnection of networks, to the creation of new infrastructure and the development of
new services. The changes that are occurring can be very beneficial for the industry, in
terms of increased productivity and employment, as well as cost reduction. Users will also
be favored both as consumers and as citizens, because they will be able to satisfy new

communication needs and increase their fieedom of choice between different cultural

 

19 Hearings included IRI, Olivetti, Omnitel Pronto Italia, Consiglio Superiore delle Poste e
Telecomunicazioni (Superior Council for Posts and Teleconrrnunications, a consultative body with the
Ministry of Posts and Telecommunications), the Authority for Informatics in the Public Administration,
IBM, the Guarantor for Broadcasting and Publishing, Telepiu', several radio and TV associations, The US
Chamber of Commerce in Italy, RAI, the EC, STET, Telecom, Fininvest and the CNR (National Research
Council). Written statements were requested from several related asssociations including banks (ABI),
unions (CISNAL-Poste, CISL-FPT, UlL-Post, CGIL-FILPT), Confindustria (entrepreneurs),
Confcommercio (wholesale and retail), Confesercenti (retail), ENEL (electricity), Societa' Autostrade,
SIAE (copyright), SNAM (gas), foreign telecommunications regulators (Oftel, Conseil Superieur de
l'Audiovisuel, Direction de la Reglementation Generale des Postes et Telecommunications), research and
consulting companies (Reseau, Andersen Consulting).

30

EMT—[1‘ -_ ——
_..
,.
,e

31

stimuli. It was also pointed out that the communication revolution could entail short-term
employment and mobility problems and that it is crucial for the cultural identity of
countries that the contents of communication be developed as well.

Three main themes were identified for the experts to develop:

1. Given that the Italian system is characterized by delays in competition for value-
added telecommunications services”, by the Telecom Italia monopoly over network
infrastructure, by poor development of electronic publishing, by lack of cable TV and
satellite TV and by only very recent competition in mobile telephony, the Commission
wanted to verify how, in the next 5-7 years:

a) new value—added and multimedia services can be developed;

b) the infrastructure can be adapted to the new needs (what investments are needed,
how many financial resources are needed, who can operate in the new markets);

c) the capacity and competitiveness of the Italian industry can increase and support
the development of multimedia services (hardware, software and contents);

(1) the Italian TV system can be transformed by wiring the country, by using satellite
broadcasting, by transmitting video signal over the local copper loop, by a more rational
use of frequencies;

e) mobile communications can be further developed;

f) the joint development of telecommunications and information technology can be

enhanced through a better interoperability of systems and standardization.

2. What is the role of network infrastructure operators in the convergence and
liberalization of telecommunications? In Italy potential competitors are other utilities that
currently do not use their infrastructure for telecommunications (railways, electric and gas
utility, the fieeway system). Further, the vertical integration between infrastructure

operators and service providers must be analyzed: while there may be synergies, there is a

 

20 Complete liberalization was only introduced in 1993.

32

risk of distortion of competition where bottleneck facilities allow restriction of access to

the network.

3. What kind of regulation should be adopted? Several options are possible:

a) A single regulatory body for telecommunications, information technology and
television or separated bodies;

b) A regulatory authority with antitrust responsibilities or reservation of the latter to

the general antitrust authority.

The "multimedia revolution"

According to the experts that were interviewed (Bosco, 1995), the main technological
determinant of the "multimedia revolution" is the evolution from analog to digital
technology. The latter allows a high level of compression, manipulation and protection of
information, thus increasing the potential of information supply and elaboration. Other
elements are new microprocessors and new switches (Asynchronous Transfer Mode).

The information society was described in the Bangemann Report, adopted in May
1994 by the European Community. The report identifies the conditions for the creation of
the new society (liberalization, interconnection, interoperability, new regulation,
intellectual property protection, privacy and information security protection) and
highlights ten applications to start the revolution: telecommuting, distance learning,
university and research center networks, telecommunications and information technology
services for small and medium businesses, road and air traffic management, health care
networks, application of information technology to tenders”, transeuropean networks of
public administrations, urban information highways.

The Senate inquiry concluded that the communications convergence is not only

technological, but it also entails the creation of a global market and global operators.

 

2‘ For example, the use of information technology for the electronic processing of applications.

33

According to some, the convergence of media will create a single "new media" industry.
The introduction of digital technology, satellite and cable into the television industry will
change the character of television from broadcasting to narrowcasting, pay-TV and
interactivity (catalogue TV, pay-per—view, video on demand). The third generation of
personal and mobile communications will allow individuals to communicate voice and data
in any part of the world, with minimum-sized handsets.

In order to realize the "multimedia revolution" a broadband telecommunications
infrastructure is needed, for the transmission of voice, data and video at the same time and
at an accessible cost over most of the national territory. The objective is wiring Italy by
2015 with fiber optics and increasing the use of satellite communication and broadcasting.
At the same time, the state and public administrations will have to promote the growth of
services and programs to be transmitted over the new infrastructure.

While it is possible to forecast the features of the future supply of multimedia
services, the size and structure of the potential market are still unknown. There is
uncertainty on the demand for multimedia services, especially residential demand. Some
countries are experimenting with multimedia and interactive services and are conducting
market research. Some of these initiatives will be analyzed in the next chapter.

While the potential for communication through multimedia services will undoubtedly
bring great advantages to its users, there is a risk involved in the "multimedia revolution".
Access to the new technology may not be universal, thus dividing society into "haves" and
"have-nots". Individual privacy and the security of data transmission are at risk. Last, but
not least, the availability of broadband media entails the need for new services and radio
and television programs. If a country's supply of programming cannot keep up with the
Pace of technological development, there is either a risk of wasting the new capacities, or
a risk of being invaded by foreign products. The result would be a loss of cultural identity

and the further marginalization of national entertainment industries.

34

The Italian situation

While the above considerations apply to most countries at the beginning of the new
multimedia era, some peculiarities of the Italian context need to be spelled out in more
detail.

Discussions in Parliament pointed out several negative aspects of the Italian
telecommunications and television industry. As a general observation, it is clear that the
liberalization and innovation of the industry lag behind other industrialized countries. The
degree of monopoly in telecommunications is among the highest in industrialized
countries. Tariffs for leased lines, international and long-distance telephone prices are
extremely high (up to ten times the corresponding US prices). The liberalization of value-
added services (EC Directive 11. 388 of 1990) was not completed until 1993 due to the
incumbent's attempts at hindering liberalization. The Italian efforts in R&D are insufficient,
both at the national and at the EC level. There is poor integration between research and
industry and the latter is not sufficiently involved in R&D. The Italian telecommunications
sector was weakened by the failed attempt at creating a national industry. Instead of
pooling resources into the "Telit" project, some parts of the industry were sold to foreign
investors (Telettra and Italtel).

The television industry shows similar problems. The restrictive laws of the 19705,
aimed at protecting the public monopoly on broadcasting, prevented the development of a
cable TV industry in Italy. Several studies on the development of satellite broadcasting,
that called for the creation of a national satellite system were ignored by the same
authorities who commissioned them. The most recent law on broadcasting, 11. 233/1990,
did not address the issue of cable TV and satellite TV in a comprehensive way either,
although more recent laws sanctioned the obligation for pay-TV channels to transmit over
a cable or satellite infrastructure that does not exist.

The fiequency spectrum has not been managed effectively. The last frequency

repartition plan was made in 1983 and there are delays in the new allocation plan. At

35

present, the frequency spectrum is congested with radio and television channels, thus
preventing the development of mobile communications”.

The public sector lags behind in the adoption of new technologies for the
communication and processing of data. These resources are not used rationally in order to
supply better and faster services to citizens. There is no integration or interoperability
between public networks. At the same time, there is a lack of coordination between public
authorities in publishing, entertainment, broadcasting and related industries.

Some data will better illustrate the Italian situation in comparison with other
European countries. In the telecommunications field, fixed network telephone service is a
monopoly in all countries but the United Kingdom. Mobile services are provided by 4
operators in the UK, 3 in Germany, 2 in France and, very recently, 2 in Italy. ISDN
networks in 1993 were 1,500 in Italy, 15,000 in France, 25,000 in the UK and 60,000 in
Germany. While the UK has completely liberalized telecommunications infrastructure and
services, in France it is possible to build networks for closed user groups that can be
opened up to third parties under certain conditions. In Germany this possibility is extended
to the creation of private networks by public utilities. In' Italy, public utilities have their
own networks, but closed user groups cannot build their oWn networks and resell excess
capacity to third parties.

In the television industry, direct broadcasting satellite TV has over 3 million viewers
in the UK, 6,5 million in Germany, 150,000 in France and 200,000 in Italy. Cable TV
operators in Germany are 1,900, 163 in France, 130 in the UK and 0 in Italy. Cable TV
networks are accessible to 85% of households in Belgium, 37% in Germany, 5% in
France, 2% in the UK and 0 in Italy.

In France there are 7 satellite channels and 7 cable channels; in Germany 6 satellite
and 7 cable channels. The UK has 20 satellite channels and 20 cable channels, Italy has

 

22 There are about 4,000 applications for licenses that cannot be addressed, with a loss of 350 billion lire
per year. The fiequency bands assigned to mobile services are only 20% of the European average. -

36

none. In the UK there are 4 broadcast channels, in France there are 4 plus one broadcast
pay-TV. Germany has 6 broadcast channels and Italy has 9 national broadcast channels, 2
pay-TV and about 870 local stations (Bosco,1995).

There are, fortunately, some positive aspects of the situation of telecommunications in
Italy. There have been large investments in the infrastructure: links between cities and
between central offices in cities consist of optical fiber cables. Urban networks are being
increasingly wired with fiber optics to the curb, although fiber to the home has not been
realized due to its high cost. Intelligent networks are available, ISDN is expanding as well
as the use of advanced software for network management. An electronic mail system
(Postel) has been introduced. Digital mobile telephony is being introduced and
videoconferencing facilities are available. RAI's ample production capacities in the radio

and television sectors will be a valuable asset for the production of multimedia services.

Reforms needed in the telecommunications sector

Because the "multimedia revolution" has so many potential advantages for the whole
society and the economy, Parliament debates produced proposals aiming at the adoption
of a "National Project", that could use multimedia to trigger the economic development
and industrial policy. The definition of a plan for technological development in the
information and communication sectors, of a new telecommunications plan and of an
industrial development plan for the growth of employment were also deemed necessary.
Furthermore, according to the Bangemann Report, each country should start the ten

projects mentioned above for the creation of an information society.

It is generally accepted that the information society will be governed by market forces -

and will develop from private financial resources. The new society emerging from the
"multimedia revolution" should make the most of individual differences and specificities,
and this cannot be disciplined by centralized authorities. The state's role should be to

support and regulate the new developments.

5_——“1

37

More specific initiatives that need to be taken include the liberalization of
telecommunications: not only value-added services and mobile telephony, but also local
telephony and the infrastructure.

One proposal plans competition for a specific market. Local authorities would tender
limited areas to be wired by private companies for the introduction of cable TV.
Telecommunications services might be supplied by other public utilities that own and
operate large private networks. According to others, smaller towns with poor
telecommunications and broadcasting facilities should be wind first.

The liberalization of telecommunications must be accompanied by new regulatory
methods. Liberalization is not to be intended as the lack of rules, it is rather market access
according to modern rules, that allow the process of technological innovation, but at the
same time are certain and enforced. The main regulatory issues have been identified as
follows:

a) Open access for subjects that present qualitative requisites (moral, financial,
technical and organizational) that protect users adequately;

b) Free access for service providers to any network infrastructure at predetermined
conditions;

0) Restructuring tariffs of the public operator, setting cost-based prices, eliminating
cross-subsidies; .

(1) Determining access and interconnection tariffs that are cost-based, equitable and
non-discriminatory;

e) Creating rules for the protection of security and integrity of networks, for data
protection, and for the promotion of interconnection of networks and interoperability of
services;

0 Eliminating restrictions on foreign ownership in the infiastructure;

g) Reforming the law 223/1990 and other laws concerning broadcasting, so that

restrictions on cable TV and satellite TV are removed.

38

Several tasks have been pointed out for the state. It should adopt an industrial
development plan for the Italian telecommunications and software industry. It should also
promote the development of services and demand for such services, by supporting pilot
projects, reorganizing the information networks of the public administration, and making it
easier for citizens to access them. The state can also play an important role in promoting
education and professional training in the multimedia industry. The development of a
multimedia market can be supported through tax breaks for investments in technological
innovation and lower cost services. The Italian show and entertainment industries need
support and intellectual property laws should be adequate both at the national and at the
European level. Laws and research projects are needed for the protection of privacy in
communications. On a broader level, the state should promote R&D, both public and
private, and help increase Italian participation to EC projects, integration between

universities, research institutes and the industry.

The reform of radio and television broadcasting

The reform of radio and television broadcasting builds on four main projects: 1)
wiring the country; 2) developing satellite broadcasting; 3) experimenting with video
transmission over copper wire; 4) regulating the radiofrequency spectrum.

The first project seems essential for the development of narrowcasting and pay-TV
and for the provision of interactive services. Estimates of the investments needed to lay
cable in Italy go from 30,000 billion lire (US$ 24 billion, to reach 16 million households),
to 60,000 billion (US$ 36 billion, for 20 million households”). The cost per household
would be US$ 1,500 with fiber optics to the building and coaxial cable to the apartment or
US$ 2,500-3,000 with fiber to the home. These hypotheses are based on an estimated
customer base of 4 million households in the year 2002. Of course, costs vary greatly

 

23 The total population of Italy is 58 million, with 20 million TV households. Telephone penetration was
around 43 per one hundred population in 1994. The number of TV sets in use per one hundred population
was 42.

 

39

according to population density. It is estimated that by the year 2000, 20% of households
could be connected. While STET would lay fiber on all long-distance connections, other
entrepreneurs could wire specific areas and provide both TV and telephone service, as has
been done in the UK. The provision of both services would make investments
economically more viable and greatly reduce telephone bills for users.

Satellite technology can be used at a lower cost and in shorter time both for
telecommunications and for broadcasting, thus freeing radiofrequencies for other services;
Satellite technology does not provide interactivity though and can be best used for one-
way service. While it is more affordable than fiber optics, the equipment cost for
broadcaster and user is not to be ignored. Therefore, the promotion of satellite services
should be supported through financial aid or tax breaks. As long as Italy does not have its
own satellite, European satellites such as Eutelsat's Hot Bird Plus (to be launched in 1996)
or Astra can be used.

The third project, radiotelevision transmission over copper wire, was supposed to
start in 1996, with a potential demand of 2 million users by the year 2000. An
experimental project was started in November 1994 by Stream, STET's subsidiary for
multimedia services, a joint venture with Bell Atlantic. Adsl (Asymmetric digital subscriber
loop) technology is used, which allows the transmission of video signals over copper wire
at a speed between 1,5 and 6 Mb/sec. This speed allows the reception of three TV
channels with VHS or better quality.

The experiment involves a test market of 2,000 households in Milan and Rome. They
will be divided into two parts: during the first six months (starting in fall 1995) 1,000 users
will experiment video on demand, while the rest will use a less advanced system (near
video on demand). At the end of the first cycle, both technologies will be installed in the
homes of the entire sample. This will allow to verify the reactions of the two groups. The
experiment will be followed by surveys to spell out customers' needs and make the needed

technical and marketing variations. This interactive service aims at promoting movies,

40

other TV programs, games, home banking, electronic mail, videoconferencing,
telemedicine, distance learning, telecommuting and teleshopping. The latter would use Bell
Atlantic's ”Stargazer" technology for credit card payment. The total investment for the
launch of the service is estimated in 5,000 billion lire (US$ 3 billion) over the next four
years (Vergnano, 1994).

The experiment was also criticized by RAI and other television associations, because
signal quality would be poor and the cost for users would still be high. According to them
STET should adopt fiber and coaxial cable technology in order to obtain larger
bandwidths and enhance the productivity of its investments. This point has also been
raised at a more global debate level and was quite relevant to STET's following decisions.

After the experiment was started, STET announced that it would pursue a different
option and take fiber to the home after 3112“, thus creating an embarrassing situation for
Stream, that was investing in a less costly and more limited technology. Moreover,
Stream's partner, Bell Atlantic, became a partner in Olivetti's Omnitel consortium, that
won the second mobile telephone license and is therefore Telecom‘s competitor. This
move deteriorated the relationship between STET and Bell Atlantic, which finally
withdrew from the joint venture. The future of the Stream experiment is now uncertain at
best.

The fourth project, the management of the radiofrequency spectrum, calls for a new
plan for the repartition of fiequencies that takes into account future developments of
mobile telephony. The fiequency allocation plan for broadcasting should also aim at the
reception of the largest number of possible signals with low interference. The introduction
of digital technology in broadcasting would allow a remarkable increase in the number of
channels that could be received in each area. No precise plans for these developments had
been made at the time of writing. ’

 

24 At first, the decision had been made to go with Adsl technology for 7-10 years and then switch to more
advanced technology.

41

Network infrastructure liberalization

The debate over infrastructure competition has been focused on two alternative
solutions: on the one hand is the US model, with a number of specialized private networks
that are interconnected with each other. On the other hand is the French model, that
features the concept of one integrated network for everyone. Supporters of the integrated
solution underline its lower cost and reduced interconnection and interoperability
problems. The US model, on the other hand, focuses on competition for a diversified
demand and lower price to consumers. While an integrated network has a potential lower
cost, the consumer benefits in a monopolistic environment depend on the public
authorities' access to cost information and regulation of supplier behavior.

In the meantime, the Commission of the European Communities designed a path for
the gradual liberalization of the telecommunications infrastructure in Europe. The first step
will be the liberalization of infrastructure for the supply of value-added, mobile and
satellite services. The liberalization of the use of alternative networks (public utilities) and
cable TV networks by third parties will follow. By January lst 1998, the total
liberalization of all infrastructure should be achieved.

Infrastructure competition will have to be regulated in the interest of users. The
interconnection of all networks and the interoperability of services must be assured. Each
operator must respect uniform technical and provision standards. Each service provider
must have free access to each network and each network operator must contribute to the
public service obligations of other operators.

The debate in Parliament brought up different opinions as to whether network
operation and service provision should be separated. TV associations declared to be in
favor of separation, possibly allowing cable operators to supply telephone services as well.
Others pointed out that the operation of networks and the provision of services can have

synergies in a context of pluralism of networks and competition. One proposal would

 

 

42

allow integration only for basic services (voice telephony), not for value-added services.
Whatever decision will be made, it is clear that regulation is needed to protect
competition. A structural or at least accounting separation between network and service
activities is needed, as has been done in the UK. Asymmetric regulation for incumbent
operators in order to promote competition might be another solution. Past experiences are

available for evaluation in the UK and in the US.

Regulation
Most experts expressed their support for a single regulatory body for

telecommunications, television and information technology, because these sectors are
converging. The lack of an authority is slowing down the development of these sectors
because of the high uncertainty of future regulations. According to the experts that were
interviewed, the regulator should be agile, technically qualified and operate to liberalize
and promote competition, without bureaucratic relationships with companies. It must
operate in a transparent manner, publish and diffuse its decisions and motivations. The
regulator must be strong and authoritative especially with regard to network
interconnection and service interoperability in a liberalized context.

Several different opinions were expressed as to the regulator's antitrust powers. The
number of those who wanted to keep regulation and antitrust separated was slightly
larger, even though everybody agreed on the need for a strict cooperation between the
two bodies.

There is a general agreement on the need to make the regulatory authority
independent from the government. The main reason is related to the inefficiencies
displayed by the Ministry of Posts and Telecommunication's technical structures. The
Ministry is a bureaucratic structure, slow in adopting innovations and involved in the
collusion between politicians, suppliers, service companies and unions. Moreover, the

government operates with short-term objectives, while an independent authority can

43

pursue long-term goals. The government would impose political goals such as increasing
employment and reducing inflation over an efficient structure of the system.

Other countries' experiences were analyzed, namely the French model, where the
Ministry of Posts and Telecommunications regulates telecommunications, the British
model, where regulatory tasks are shared between the Ministry and Oftel, or the US
model, where most regulatory powers are centered in the Federal Communication
Commission and are shared with state governments through coordinated policy-making.
Both the UK and the US models tend to concentrate the bureaucracy involved in
regulation in their regulatory bodies, while governments provide broad industrial policy

objectives. There is thus a clear separation between the two areas.

The reform bill of January 1995

After the Parliament debate and the hearings that produced the above conclusions, the
chairman of the Senate Commission for Public Works and Communications, Bosco,
presented a bill containing new rules for the telecommunications and cable/satellite
television sectors (N. 1331, 1.31.1995). This bill was based on the major trends of
convergence, multimedia services, the need to reform Italian law and align it with
European legislation and the need to establish a number of stable principles on which to
build flexible laws.

The most innovative aspects are related to institutional changes. The Parliament
Committee of Vigilance would be replaced by a Committee for Communications that
would be responsible for telecommunications, broadcasting and new technologies. The
Ministry of Posts and Telecommunications would change its name into Ministry for
Communications and include responsibilities over publishing, public information and the
show business as well. It would be the policy making body for both software and
hardware in the broad telecommunications sector. The Ministry of Communications would

still adopt technical norms for equipment, approve the fiequency repartition plan and

public service contracts with telecommunications concessionaires, but it would share its
powers with a new Authority of Corrrmunications. The latter would be appointed by the
Parliament Committee among independent experts in the telecommunications sector. It
would be articulated into two commissions of three members each plus the Authority
chairman. The first commission would be responsible for the powers now in the hands of
the Guarantor for broadcasting and publishing and enforce future rules on communications
contents. The second commission would take over the responsibility to prepare the
frequency allocation plan and make proposals to the Minister for the frequency repartition
plan. It would grant concessions for the construction and operation of telecommunications
networks on a pluriregional and national scale. It would also grant authorizations for the
supply of cable and satellite television services. This commission would determine and
manage access tariffs, universal service conditions, concession and license fees and enforce
the conditions spelled out in licenses and authorizations.

Another innovation in the Bosco bill was the creation of an interrnirristerial committee
for communications, gathering the Minister of Communications, the Treasury Minister, the
Minister for Industry, Commerce and Crafts, the Minister for University and Scientific and
Technological Research, the Minister for Public Functions and Regional Affairs, the
Minister of Public Education and the chairman of the Authority. This committee would
ensure the coordination of the different public administrations for the development of
communications and promote pilot projects in the different sectors related to
communications.

The last proposal concerns the creation of a Fund for technological innovation in
communications. It would be financed by concession and authorization fees, a tax on the
price of telecommunications services and part of the revenue derived from the national tax
on communications (to be created). The Fund would finance pilot projects in the

communications sector and the objectives identified by the European Community for the

45

creation of the information society. Investments in satellite and digital technology could
also be funded.

Several tax exemptions are proposed for companies that invest in optical fiber
networks and for the purchase of satellite dishes.

According to the bill, the Authority proposes regulations for telecommunications and
cable and satellite television to the Minister of Communications. He then sends it to the
competent Parliament commissions and the Committee for communications. If there are
no amendments, the regulation is approved with a ministerial decree (see figure 2). If there
are amendments, the regulation is changed according to the Committee's suggestions and

then approved. If it is rejected, a new regulation is subnritted to the Committee.

 

 

Authority H Minister of Communications

 

 

 

Committee for Communications 1

 

 

 

Ministerial decree

 

Figure 2: The regulatory process according to the reform bill of January 1995.

 

46

The leading principles for the regulation are: liberalization of the construction and
operation of telecommunications networks, cable TV or satellite TV networks. Networks
for closed user groups in specific areas are also to be authorized by the relevant local or
national authorities. EC directives in the telecommunications, cable and satellite sectors
must be enforced. Universal service obligations can be imposed on concessionaires. All
telecommunications services, including voice telephony, must be liberalized. Infrastructure
operators can also provide services, but they must have administrative and accounting
separation of their activities. Authorizations for the provision of voice telephony cannot be
obtained before January lst 1998, unless the concessionaire is a cable TV operator.
Private network operators can supply infrastructure and services to third parties, as long
as the different activities are separated. The Authority regulates access and service tariffs
in monopolistic or oligopolistic contexts. It also imposes quality requirements for

telecommunications, cable TV and satellite TV services.

Conclusion

From the Parliament proceedings related to the "multimedia revolution" the need for
an integrated approach emerges very clearly. If the aim is the creation of an "information
society" and compliance with EC policy, very much needs to be done to complete the
liberalization process and to adopt new technologies. All decision makers should
coordinate their activity and not waste resources in unnecessary duplicated efforts. The
most recent example of this waste is the Stream-Bell Atlantic Adsl experiment: a
significant amount of resources has already been committed to this technology, but STET,
that is Stream's major shareholder, changed its mind and just decided to pursue fiber to the
home, thus creating further confusion in a sector that is already undergoing so many
changes. The feeling one gets from the reform projects as well as from past performance,
is that the telecommunications sector has attracted the attention of many players and many

verbal commitments have been made, but it will be very difficult to carry out all projects.

47

The main problem is that too many actors are involved and they all have veto power, thus
rendering decision making a very lengthy and complicated process. The risk is that, as has
happened in the past, no decision or the wrong decisions will be made and Italy will
continue to lag behind in the innovation of its telecommunications and television industry.
The pressures coming from incumbent operators that do not want to lose their privileges
will only make the reform process harder.

As will be shown in the next chapter, numerous other countries have been
experimenting with interactive and multimedia services for the last couple of years. The
United States is a particularly significant example, because its broadcasting and
telecommunications industries are based on private enterprise. Investment decisions in
advanced technologies are not being made by the US government, but by private
companies that estimated that the market is ready for new services and are addressing the
segments they think will be most profitable. The approach in the United States is thus not
centralized, but market-led, insofar as that is possible, because the real demand cannot be

known until the new services hit the market.

 

 

ll

CHAPTER 4

MULTIMEDIA AND INTERACTIVE SERVICES IN OTHER COUNTRIES

This chapter enlarges the horizon of the interactive services that are being planned and
implemented worldwide. Examples of interactive trials are given from Canada, the United
States, European countries and Asian countries.

STET's alliance with Bell Atlantic in the Stream venture gives a hint as to where the
technology for interactive services is being developed with the most intense effort: the
United States. The "interactive fever" hit the US a couple of years ago and all major
companies in several related industries (cable TV, telephony, software, hardware) have
been setting up trials in limited geographic areas. But the US was not where it all started.
The first "interactive" television service, Videoway, was launched in 1990 by Le Groupe

Videotron Ltee, a Canadian cable company.

The beginnings of interactive TV

I’ Videoway features a pay per view service that allows subscribers to order movies and
special events by using their remote control. The Interactive Television menu allows them
to modify the course of a program, select a different camera angle, choose among news
stories. For example, during a hockey game, they can select close-ups on two different
players, along with statistics on their performance and get instant replays of the last few
seconds pith; action. This service is still one-way, all channels are sent to the home and
viewers actually interact with the set-top box (Anne Hoag, personal communication,
, October 1994). The same network offers electronic mail, videotext, games and a number I
of optional services by other networks, both Canadian and horn the US. In 1994,
Videoway subscribers paid CDN$ 18.95 per month, including a Pay TV service or CDN$

7.95 without Pay TV. 67% of subscribers have taken the more expensive package and

48

49

63% of customers retain Videoway after the 30-day testing period. This service has
reached 26% market penetration in four years and has proved an effective retention tool
for basic TV service and Pay-TV. The simplicity of its set-top box allows installation by

VHF-L—

the subscribers themselves in 85% of cases (Videoway, 1994). The Videoway experience

._.__L_._—~

provides an interesting example of market testing of an interactive service, even though it
comes mixed with other traditional cable services. It seems to have been quite successful
in terms of market penetration, even though critics report that subscribers have soon
1 grown impatient with the limited interactivity of the service (Landler, 1990).

In early 1994, five of Canada's biggest companies (Videotron, Hydro-Quebec, Canada
Post Corp., National Bank of Canada and the Quebec Lottery) and Hearst Corp.
announced plans to launch the UBI (Universality, Bidirectionality, Interactivity) project in
September 1995. It will be the world's largest interactive TV system, with 34,000 homes
connected within the first few months. Chicoutinri, a town five hours' drive north of
Montreal, will be the first market for UB1. The service will offer home shopping,
electronic catalogs, coupons that can be printed out, banking services, educational tools,
home automation, e-mail, classified ads and an electronic business directory supplied by
Hearst. Customers will receive, free of charge, a set-top box, in-home printer, "smart"
card and remote control. They will pay monthly basic cable charges, but no additional
charges to use the system. There will be pay-per-view movies, but no video on demand
(VOD). It is thus a low-tech choice until VOD costs become more reasonable. This is the
main reason why UBI has been almost totally ignored by US companies, whose tests all
focus on VOD. Although UBI is a lower profile initiative, it has several advantages over
similar US trials. First, it is not a test, but a complete launch: all Chicoutirni homes are
scheduled to be wired within a few months. Thus, [precious data on demand characteristics
can be gathered that will be superior to the data collected in US trials that, for the most
part, wire only a few hundred to a few thousand homes. The Canadian environment is also

more fiiendly than the US: there is no competition, while in the US all major cable

50

companies and telcos are racing to be there first. Moreover, there are less regulatory
constraints in Canada and one of the partners (Videotron) already has some experience

and reputation as an interactive TV provider (Aho Williamson, 1995a).

US telco projects in interactive services

While cable companies are more naturally focused on TV-based interactive services,
the first moves by telephone companies have been toward providing communications and
networking services to businesses. Examples are AT&T's WorldWorx and MCI's
networkMCI Business, both launched in 1994. AT&T's product was first and offers access
to numerous services, but MCI provides all in one package. Services provided are e-mail
fax, video conferencing and access to the Internet (Keller, 1994). Later, in May 1995,
MCI signed a four-year, USS 2 billion deal with Rupert Murdoch's News Corporation. In
exchange for the cash transfer, MCI will acquire a 13.5% equity stake in the media
company25 and the two partners will each invest an additional USS 200 million into a new
joint venture. News Corp. content (news and entertainment) will be electronically
distributed to businesses and homes through MCI's telephone network, first to users'
computers and later to their TVs (Krantz, 1995a).

The MCI/News Corp venture is a response to similar alliances, such as Sprint's
content distribution alliance with cable companies TCI, Comcast and Cox. This venture,
called Triple Play, aims at offering alternative wireless (W irelessCo) and wired
(NewTelco) local telephone services. The participants are likely to be the first to offer
combined local/long distance and telephone/cable services under a single brand (Sprint),
glued together by a single switching architecture (Teleport's), with combined billing and
customer service, and with. shared (and thus lower cost) and more quickly-deployed

network infrastructure (Merrill Lynch Capital Markets, 1995).

 

25 With an option to acquire up to 20%.

51

AT&T seems to be the only major long-distance company to have bad luck when it
comes to multimedia and interactive initiatives. Its alliance with Viacom to build an
interactive TV system in Castro Valley, California, has been put on hold pending the
outcome of Viacom's proposed sale of its cable TV systems. AT&T was to develop
equipment and video services through Downtown Digital, a division created in 1993 to
develop content for this and similar ventures that, too, were later canceled. AT&T
developed sophisticated digital set-top boxes that were too expensive for commercial
deployment, while General Instruments and Scientific-Atlanta, among others, made
cheaper models that just do what customers are likely to pay for, like ordering movies
(Kupfer, 1995).

Another telephone company, GTE, was also among pioneers in interactive television.
They obtained an FCC waiver of telco-cable cross-ownership rules in 1989 to build a cable
system in Cerritos, California. At the end of 1993 GTE was ordered by the FCC to put an
end to the trial. The main problems in the unsuccessful test were its limited scope, a
feature that made it unsuitable for advertising, and its failure to use full-motion video
(Selinger, 1993). In 1994, GTE was planning another video network that would provide
cable, broadcast and interactive TV programs by 2003 to seven million homes. The test
locations would be four cities in California, Florida, Hawaii and Virginia (GTE plans
video..., 1994). In the meantime, the company made an agreement with Nintendo to create
interactive video games and thus tap into N intendo's retail channels and established
consumer market (Bemiker, 1995a).

Similar problems occurred to Regional Bell Operating Companies (RBOCs), such as
US West, that is about a year late in rolling out a video system designed to service 50,000
customers in Omaha, Nebraska. US West's video dialtone gateway, TeleChoice, is
expected to offer conventional cable and new interactive services in its trial area. It signed
a number of contracts and made verbal deals with 22 video program and information

providers: movie studios, television production houses, video game producers and others

52

will put their shows into massive video servers, creating a library of video choices that
consumers can access in an on-demand format (Bemiker, 1995b).

Ameritech has chosen a different strategy. It will not conduct any trial and expects to
sell its video services to 300,000 households by the end of 1995. The company awarded
USS 475 million worth of contracts for various pieces of equipment from Scientific-
Atlanta, Digital Equipment Corp. and ADC Teleconrmunications. The network aims to
provide alternative service to cable, but has not disclosed details on the programming it
plans to offer (Bemiker, 1995c).

Nynex is also planning to start up a separate subsidiary for content production. It
plans to use digital set-top boxes by Zenith and digital video servers by Digital Equipment
Corp. A fiber-coax access system, including transmitters and receivers, will come from
ADC Telecommunications. Nynex is already testing some interactive services over its
analog network to a limited number of consumers as part of its Manhattan video dialtone
trial. The programming and interactive services for that trial are largely provided by
Liberty Cable, that occupies 70 of Nynex's 160 channels. The first service offered by
Liberty Cable was movies on demand, with test participants ordering a movie per week“.
Liberty also offers conventional cable, Reuters and Dow Jones. It will make available
home shopping through Bergdorf Goodman and educational classes through The New
School. An air and traffic information service through the Port Authority of New York
and New Jersey is also provided. The interactive video services are being tested on a
limited customer base (27 in September 1994, 800 by the end of 1995), but 25% of the
2,500 customers participating in the analog portion of the video trial expressed interest in
interactive services (Bemiker, 1994a).

Nynex also participates in a joint venture with other RBOCs, such as Bell Atlantic and
Pacific Telesis, and Hollywood Creative Artists Agency, that has been called Tele-TV.

The new company plans initially to provide nationally branded, traditional and interactive

 

26 Take rates for this service are apparently 5.2 times those of typical pay per view.

53

home entertainment, information and educational programming over new broadband and
wireless networks in six of the top seven media markets. An initial deployment of wireless
technology will supply one million US households with interactive digital service by late
1996. By the end of the year 2000, the number of customers will have expanded to 10
million. Market trials of on—demand programming began April 17, 1995 in the Washington
area. Tele-TV will offer more than 100 channels and pricing will depend on cable
competition in markets, with 10%-15% discount off cable fees likely in competitive
markets and no discount offered consumers in less competitive markets. In July 1995
Tele-TV was scheduled to begin a six-month laboratory test of an operating system from
Microsoft for possible use in the venture (Tobenkin, 1995).

As emerges from the abOve examples, there are still uncertainties as to the best
technology to use. For example, Bell Atlantic, Tele-TV's strongest partner, recently
withdrew two applications for video dialtone on the East Coast because it wanted to
upgrade the technology it had committed to. Its original plan was to wire its system with a
mix of fiber-optic and coaxial cable. The company now will go to all fiber, allowing for
more interactivity and better picture quality. Interestingly, Bell Atlantic's Italian partner,
STET, made the same decision approximately at the same time. Bell Atlantic is conducting
- two market trials, the high-profile Stargazer video on demand system in Fairfax County,
Virginia and the lower-techToms River, New Jersey test. They are both scheduled to start
in. 1995, with 1,000 Stargazer households online by July and 10,000 to 20,000 by
December. The project will eventually be taken over by Tele-TV (Aho Willamson, 1995b).
The first trial will offer access to more than 700 hours of video on demand, including
movies, music videos, vintage TV shows, how-to shows, educational and children's
programming and shopping services featuring Land's End, Nordstrom's and J .C. Penney.
By 1996, Bell Atlantic plans to offer its phone customers more robust services, including

cable TV (Krantz, 1995b).

54

A common problem for all telephone companies is that they need to wait until their
fiber/coaxial cable networks are in place before they can start offering interactive
television services. In the meantime, they are turning to older technology, such as wireless
transmission of cable channels. There are several "interim" technologies that are being
adopted by telcos such as Nynex and Pacific Telesis: Multichannel Multipoint Distribution
(MMDS), Satellite Master Antenna Television (SMATV), and Local Multipoint
Distribution (LMDS). All three technologies enable telephone companies to transmit
prograrnnring over the airwaves, rather than through their wires. These systems are
relatively cheap and easy to install, but they have serious drawbacks. Wireless cable can
only transmit up to 33 channels and the signal is easily interrupted by trees, buildings, hills,
etc. MMDS, for example, has been used mostly in areas that are either too rural or too
poor to interest regular cable operators. New digital technologies would enable companies
using MMDS to increase the number of channels to more than 100, but customers would
have to purchase expensive set-top boxes. LMDS is even more rudimentary than MMDS,
because it is sufficient to install a small satellite dish to receive signals. Of course, wireless
services use spectrum, which is currently being preferably allocated to mobile
communications. SMATV is also limited, because it is a useful technology for large
apartment buildings, where the signal is captured by a central receiver and distributed
through the building via coaxial cable. It is far less suitable in rural or suburban areas with
single-family houses (Landler, 1995).

US cable operators' projects in interactive services

The largest US cable operators are all testing interactive television, too, in
conjunction with other cable companies, telephone companies or software houses such as
Microsoft or ACTV. They are all ready to start between 1995 and 1996 and heavy
investments in cable modems, set-top boxes, ATM switching and content are being made.

According to some commentators (Dempsey, 1995), "cable operators are way behind in

55

delivering on their brave new world promises of everything from movies on demand at the
flick of a button on the remote, to a whole array of interactive goodies ranging from video
game playing to horse race betting." There are delays in the delivery of interactive
services, due to technical problems and federal regulation. Another difficulty seems to be
access to capital, a problem that telcos do not have, because they have much larger cash
reserves and greater sustained revenue streams. The lack of capital slows down the cable
industry's upgrade of their systems and prevents new cable operators fiom entering the
business due to lack of channels. On the other hand, cable companies are trying to get into
the telephone business. Besides regulatory hurdles, entry into telephony requires ability to
provide point-to-point communication, while cable systems' architecture has always been
one-to-many. Itemized billing is another necessary innovation for would-be cable
telephone providers (Krantz, 1995c). According to John Malone, TCI's chairman (Kline,
1994 and Meletti, 1994), the real reason why telephone companies are entering the
interactive television business is to keep cable companies out of the telephone market.
Cable companies can in fact offer telephone service at lower prices than telcos. The
telephone companies' strategy allegedly is nothing but a defense of their own monopoly.
According to Malone, the failed merger between Bell Atlantic and TCI and between
Southwestern Bell and Cox, as well as the successful alliance between US West and Time
Warner are nothing but telcos preparing for the real battle, the one among themselves. It is
actually not clear why the huge telcos should be afraid of cable TV's competition. The
latter are considerably smaller, but they could be the Trojan horse to invade other RBOCs'
territories if "cable telephony" develops.

The cable companies' efforts have been especially geared toward addressing not only
TV sets, but computers, too. Information and entertainment will be provided over cable to
subscribers' computers, in direct competition with telcos and online services. Cable
modems will bring two-way digital broadband signals from cable lines to computers, thus

turning Internet and online services from slow text-and-graphics offerings to high-speed,

56

interactive applications. Continental Cable has been testing cable modems from two
manufacturers, LAN City and Zenith. The cost of the boxes is still very high, from USS
500 to USS 5,000. Similar tests are being carried out by Cox Communications, Comcast,
Time Warner and TCI (Buergi & Krantz, 1995). TCI invested USS 125 million in The
Microsoft Network, an online service that will be bundled with up to 20 million copies of
Windows9527, Microsoft's upgraded operating system. In 1996, The Microsoft Network
over cable will undergo a limited technical test in Denver, Seattle and San Francisco
(Bemiker, 1995c). Microsoft is also involved in two other interactive trials, one with SBC
Communications (formerly Southwestern Bell), in Richardson, Texas, and one with NTT,
in Japan. Switched digital fiber to the curb network technology architecture fiom AT&T
and BroadBand Technologies will be used (Bemiker, 1995c). Microsoft has deals with
Hewlett-Packard, NBC and General Instruments to have its software run through their
set-top boxes. International partners include Deutsche Telekom, Telstra Corp. of
Australia, Olivetti, Alcatel, Sony and Andersen Consulting (Berrriker, 1994b).

One of the most closely watched interactive TV trials is Time Warner's Full Service
Network (FSN) in Orlando. After being put off for several times for technical reasons, it
finally started in late 1994. The service brings video on demand, home shopping and video
games at this time and new services, such as news on demand, more movies and grocery
shopping are expected to be added by the end of 1995. The service was initially free, but
charges for movies (USS 2.95 per film) and games were soon introduced (Blank, 1995).

A different kind of VOD service is the one provided by Your Choice TV. It rotates its
daily menu from a video library of hundreds of recent and past programs provided by the
broadcast networks and cable operators. The Your Choice system offers Consumers the
opportunity to purchase a programs they missed or they want to see again for a low price

(roughly USS 1) and to watch it when they choose or several times. Each day a 24-title

 

27 This strategy is being challenged by the US Justice Department, Antitrust division, as anticompetitive
because it restrains vertical market potentials.

57

menu is available including documentaries, news specials, entertainment shows and
children's programs. Your Choice has been included in TCI's VOD trial in Littleton,
Colorado. The test will show if consumers are willing to pay for old TV programs, which
could then be one of several offerings on the future menu of interactive TV. Your Choice
TV was included in several other trials with Comcast, Time Warner, Cox Cable
Communications, Continental Cablevision and others (Bemiker, 1994c).

Entertainment is not the only focus of interactive cable programmers. Viacom's .
Nickelodeon will launch the first interactive learning channel, the Big Orange, in late 1996.
Competition will be tough, though, because TCI's programrrring subsidiary, Liberty Media,
holds big stakes in such networks as the Discovery Channel and the Leaming Channel,
which have interactive plans of their own. It will thus be difficult to sell the Big Orange to
TCI, which controls 25% of US cable households (Robins, 1995).

As far as sports are concerned, ACTV adopted a technology similar to Canadian
Videoway's to enable viewers to call up replays, isolate star players and retrieve up-to—
date statistics and graphics. The service is now available to households in California that
are served by Ventura County Cablevision. ACTV's technology is used for basketball,
hockey, college football and basketball games, horse races and boxing matches.
Subsidiaries of TCI and Turner Broadcasting are also participating in the experiment.
ACTV's technology has so far been used for educational purposes and it was developed
fi‘om the electronic design of a robot invented in the mid-19705 by Michael Freeman, the
founder of ACTV. The robot was scaled down to an educational question-asking toy,
called 2X1... and ACTV took this technology to TV. The main difference with Videoway's
service is the adaptation of ACTV's interactive technology to advertising. Viewers in
Ventura County can select commercials in various product categories and languages. By
picking the commercial, their attention and recall levels are expected to be higher
(Sandomir, 1995).

58

Interactive projects in Europe

European telecom operators and other companies are also getting ready for the
multimedia and interactive revolution. In Gerrrrany, Mercedes Benz and BMW are testing
a Deutsche Telekom system to design cars faster via computer links with suppliers. Other
business applications include a multimedia project at Lufthansa to reduce aircraft repair
times, a program to introduce lean administration at state and local government and
teleservices for medicine, education and training (Edmondson, 1995). Deutsche Telekom
also reached an agreement with Microsoft to develop software for video on demand
services, home shopping and TV games. While the software is being developed in the
United States, it will be tested in Germany on systems developed by Deutsche Telekorrr. If
successful, the German telecom operator will incorporate the software in its pilot
multimedia projects, which it plans to test on cable, optical fiber and standard telephone
networks (Interactive deal..., 1994).

The country where the largest number of interactive trials are being conducted is the
United Kingdom, where the liberalization of the telecommunications sector is more
advanced. Cable TV operators can also provide telephone service, while BT is banned
from offering broadcasting services directly until 200123. Canadian Videotron was
scheduled to launch an interactive TV test in collaboration with advertising agency Chiat
Day in November 1994, but the trial was delayed until April 1995. Videotron already
offered some interactive programming on its cable system, using the same technology it
deploys in Canada.

British Telecom also postponed its interactive TV project to mid-1995 to add more
services than just video on demand. The 2,500 home trial will offer home shopping,
banking and educational programming, using Oracle interactive multimedia software.
Marketers, such as Vauxhall and supermarket retailer Tesco, are also experimenting with

interactive CD-ROM kiosks (Bowes, 1994).

 

28 BT has a cable subsidiary with 12,000 customers.

59

Videotron is not the only foreign cable operator in the UK. Seven of the nine biggest 1
companies come fi'om the US and are RBOCs and cable operators. The only exception is
French General Cable, a subsidiary of Generale des Eaux. Although these operators are
making good profits both from the cable TV and the telephone businesses, BT's dominant
position in telephony is difficult to challenge. The real opportunity for cable operators
remains building up a big enough share of the entertainment market before BT is allowed
into broadcasting. Cable penetration rates are around 20% and competition from
broadcast and satellite TV is strong. Interactive services might give the cable business a
push and turn out a competitive advantage (Down the line, 1994).

In France, Focale 7 launched its multimedia business with interactive educational
videos for the government on tobacco and nutrition. It also proposed a project that would
put graphics and visual materials on France's 2 million small and mid-sized companies into
an interactive video data bank. Infogrames Entertainment, that started out designing

services for Mirritel, is now launching its own online product (Edmondson, 1995).

Interactive services in Asia

In Japan, until 1993 the nascent interactive TV industry was limited by tight
regulations that limited foreign investment, restricted the geographic area each of the
country’s 158 cable operators could serve and favored investment by small, local
companies. After those restrictions were lifted, alliances with US companies were made,
such as the one between Sumitomo and TCI. Itochu Corp., one of Japan's largest trading
companies, is working on interactive applications with Time Warner and US West. Three
other large trading firms, Mitsubishi, Mitsui and Nissho Iwai, are also planning to get
involved. Fujitsu plans to start testing interactive TV with services such as near video on
demand, games, karaoke, local community information and communication services for
telephones, fax and personal computers. NTT, Japan's largest telecommunications carrier,

is a passive partner in TCI's interactive test in Seattle, Washington and is working with

60

Microsoft and Silicon Graphics to develop TV set-top boxes and servers. In summer 1995
an interactive trial is scheduled to start in Tokyo, Chiba and Kanagawa, offering video on
demand and phone service through fiber optic cable. The project, which will involve three
local cable TV operators, is expected to run through March 1997. None of the Japanese
cable services will have advertising, because cable penetration is still too low in Japan
(4%) (Kilbum, 1994a).

Hong Kong Telecom is also upgrading its infrastructure for multimedia services. It is
working with IBM to introduce video on demand by the end of 1995, with home
shopping and banking to follow in 1996.

Korea Telecom is testing a video on demand service in 100 Seoul homes. The service
will extend nationwide in 1996, but home shopping is not part of Korea Telecom's plans

(Kilbum, 1994b).

Demand characteristics of interactive TV

It is clear that information and data on the supply of interactive services is abundant.
Every company is eager to advertise its projects and trials. Much less is known about the
demand side. Huge investments are being made without having a precise idea of what
consumers want and how much they are willing to pay for it. It is very difficult to forecast
demand for new services before it actually starts to emerge. Brandweek (Homes on
the...,1994) surveyed the present state of the information highway in the US. Most
households are equipped with information and telecommunication technology: 82% own a
VCR, 80% have two or more telephones, 68% have two or more TV sets, 56% have an
answering machine, 47% own a cordless phone, 25% a personal computer, 13% a cellular
phone and 4% a fax machine. There is a high correlation between these appliances, i.e.
those who own a computer a very likely to also have a VCR, two or more telephones, an
answering machine and several TV sets. When it comes to interactive services, though,

only 38% of adults are extremely interested in at least one interactive service, with the

61

highest proportion (57%) of young respondents, aged 18-24, and the lowest percentage
(19%) among those over 55. Movies on demand are the highest rated service (30%),
followed by information (13%), sports and game shows (12%), video games (11%) and
home shopping (7%). Since interactive services have hardly been tested, these data only
express attitudes toward them and therefore can only give a tentative idea of actual
demand characteristics.

It is still not clear which application, between the TV and the personal computer, will
be the winning technology. As far as penetration and ease to use are concerned, TV beats
computer. Computers are only found in one household out of four in the US, much less in
other countries. People seem to be afraid of the keyboard, even though interfaces are
becoming more user fiiendly with each new generation of operating systems and
software. The convergence between TV sets and computers into new "information service
appliances" will eventually close this gap, because more and more information technology
is being incorporated in electronic equipment.

The low interest expressed for home shopping may be related to the social dimension
of shopping at the mall, besides the need to touch what is bought. Do people want to stay
home all day and do all their transactions without ever leaving the house? This possibility
is convenient for those who are forced to stay home, for health, weather or family reasons.
But most people want to go out and be among people at least a couple of times a week.
On the other hand, home shopping channels have been very successful, both in the US and
in Europe. They actually opened new markets that could not have been measured by
typical survey research.

The last question nobody has been able to answer so far is: how much are consumers
willing to pay for interactive services? Most interactive trials are fiee at the beginning, in
order to lure customers into trying them, but nobody knows how much these services
should be charged in order to get people to subscribe. A Cablevision survey (Cablevision,
1994) found that 45% of respondents were willing to pay $5 a month in addition to their

62

regular cable bill, while 39% would pay S10. The huge cost of interactive TV can thus not
be recouped from the consumer, who already pays an average of $35 for cable. The only
other source of funding is advertising. Trading companies are alert and, in some cases,
have already signed deals with interactive services providers, but will they withdraw their
dollars from well-established media such as the broadcast TV networks and invest in
ventures with an unclear future? An intermediate solution that combines subscription
charges, advertising and direct sales of advertised products and services might also be
viable in order to generate acceptable revenue streams and rates of return.

There are only very tentative suggested answers to these questions, based on possible
elaboration of tests described in this chapter, until the new services have been launched on
a commercial basis, but it is important to keep them in rrrind and use the necessary caution

when making forecasts for future developments.

CHAPTER 5
BROADCASTING POLICY AND NEW TECHNOLOGIES IN EUROPE

This chapter attempts to answer the first research question of this research and analyze the
European Conrrnunity approach to broadcasting policy and new technologies. The role of
the European Broadcasting Union and of the Council of Europe for the European media
industry is also investigated. This chapter sets the framework for a more encompassing
analysis of the main actors and their interactions in the policy process, both at a pan-
European and at a national level.

Main actors and features of European broadcasting and audio-visual policy29

Media policy in Europe is closely related to questions of culture and national identity.
In turn, these issues build on the conflict between those who view Europe as a community
of nation states linked together in a convenient free trade area (the United Kingdom, for
example), and those who envisage a Europe moving towards a supranational identity and
consciousness (France). European unionists have sought to support growing European
political structures with a corresponding European culture and consciousness shared by all
citizens. Media and broadcasting policy, therefore, has been at the forefront of their
concerns (Collins, 1994).
The four Directorates General (DGs) of the Commission of the European Communities30
- that are more directly involved in broadcasting are: DG 111 (Internal Market and Industrial
Affairs), DG IV (Competition), DG X (Audio-visual, Information, Communication and
Culture) and DG XIII (Telecommunications, Information Industries and Innovation). DG
III led the EC's rrrain initiative in the media sector to date, the 1984 Green Paper

"Television without frontiers" (Commission of the European Communities, 1984), which

 

29 Throughout this chapter the terrrrs "broadcasting and audiovisual policy" and "media policy" will be
used as synonyms.

30 For an analysis of the political structure of the European Community, see Collins, R. (1994),
Broadcasting and audio-visual policy in the European single market, London: John Libbey, p. 16-17.

63

was designed to establish a single European Community television market. To implement
the proposed policies, the Council of Ministers issued a Directive in 1989, and gave DG X
the responsibility. DG X also has specific responsibility for the audio-visual industries and
is the host directorate for the Community's MEDIA 95 program“. DG IV has no specific
responsibilities for the media sector, but its competition policies have a profound impact
on the industry. DG XIII is concerned with telecommunications, including satellite and
High Definition Television (HDTV). It sponsored the Green Paper on communication
satellites (1990) and the Directives on satellite television transmission standards (1986 and
1992). The most recent initiative in the field of media policy is the Green Paper on
telecommunications infrastructure and cable television networks (1994 and 1995).

The Council of Ministers maintains a sub-committee on audio-visual policy and the
European Parliament has a Committee on Youth, Culture, Education, the Media and
Sport, which has responsibility for broadcasting and audio-visual matters.

The media policy of the EC focuses on three distinct, but interdependent sectors:
hardware (television transmission standards), software (production and distribution of
films and TV programs), and the restructuring and harmonization of the TV broadcasting
market. The Community's policy focuses on the establishment of rules, the promotion of
film and television production, and the development of the technological competence and
productive capacity of the Community.

Two themes distinguish the development of EC media policy: the creation of a well
functioning, integrated, competitive European market for broadcasting and the audio-I
visual and intervention in the EC media markets to redress what have been perceived as
undesired outcomes32 of the single market, as fostered by the "Television without

frontiers" Green Paper. The most important factor which structures audio-visual markets

 

3’ MEDIA is an acronym for Measures to Encourage the Development of the Industry of Audiovisual
Production. It funds the pre- and post-production of fihns and TV programs. For more information, see
Collins, op. cit.

32 While the creation of a single broadcasting market would create European unity, it was perceived that it
might also have the negative effect of reducing cultural diversity between and within European countries.

65

and prevents perfect integration is the difference in language and culture between different
groups of Community citizens.

I There are thus two main tendencies, that became evident in the early 19805. The first
is directed toward the establishment of a single competitive broadcasting market. The
second is more interventionist and means to correct the mechanism of the single market.
At the beginning, the single market was perceived to deliver too much diversity. Later,
interventionists began to try and compensate for too much unity. The establishment of the
MEDIA program and the inclusion of European content quotas in the broadcasting
directive of 1989 constituted the main interventionist measures in the software domain.

Interventionists also focused on hardware and the establishment of an integrated
Community satellite TV market. In 1986 a Community Directive established MAC
(Multiplexed Analogue Component) satellite transmission standards as a Community
norm, to facilitate the development of HDTV and to support the EC consumer electronics
industry. The acceptance of the D2-MAC standard, however, made it difficult to
implement television services reaching audiences of different language communities,
because it has capacity for only two stereo and four mono channels. Provision of
multilingual services were thus rendered difficult. Promotion of a single hardware market
thus worked against the creation of a single software market, because it reduced the
amount of different languages in which a program could be transmitted at one time.

The struggle between liberals and interventionists in broadcasting and media policy is
part of a wider ideological debate concerning Community jurisdiction in cultural matters.
The inclusion of cultural competencies within the Commission's powers is as recent as the
Maastricht Treaty (1991). Some member states, notably Denmark and the UK, are deeply
opposed to the inclusion of culture within the jurisdiction of the Community. Germany and
Belgium, too, resist closer union, although their ' opposition has been less determined than
that of Denmark or the UK.

The evolution of European Community media policy

Although formal recognition of Community competency in cultural matters is very
recent,'broadcasting policy started in the early 19805. The European Parliament, which has
very restricted powers, was first involved in broadcasting policy with the Schall Report
(1981), which criticized the Community's information policy and emphasized the
importance of radio, television and film as mass media. It advocated pro-active measures
by the Community, notably the establishment of a European television company or of a
' European television channel, to promote the Community and its activities and institutions
to Community citizens.

The Schall Report was followed in 1982 by the Hahn Report and the consequent
Hahn resolution. Hahn identified the mass media, and television in particular, as
instruments through which the EC could become a genuine "political community"
(European Parliament, 1982). This report inspired the Commission's Interim Report,
"Realities and tendencies in European television: perspectives and options" (Commission
of the European Communities, 1983). The Commission stated that new
telecommunications technologies (in particular DBS) would intemationalize European
television and that technological changes would both create a greater cultural unity and
offer competitive advantages to European industry and culture. The Commission's report
also emphasized the mismatch between expected increase in television distribution
capacity (through satellite technology) and European production capacity. This imbalance
would cause an invasion of foreign programs (especially from the United States) and thus
threaten European cultural identity. In the early 19805, European cultural identity was
viewed in terms of unity rather than diversity. "A double determinism governed the
Community policy debate. Technological determinism would ensure that new
communication technologies (notably satellite television) would transcend and supplant
national media. Cultural determinism would ensure that the cultural characteristics of the

programs would be reproduced in the consciousness of those who consumed their output"

67

(Collins, 1994). The Community and other European institutions, such as the Council of
Europe and the European Broadcasting Union (EBU), thus supported the Eurikon and
Europa satellite television channels and the EBU's Euronews satellite television channel.
Later in the decade, the diversity of tastes of European audiences became evident in the
failure of these attempts to establish pan-European television services. Integrated
European audio-visual markets began to be seen as an enemy of cultural diversity within
the Community. Viewers of the first European transnational satellite channel clearly
recognized the different, European character of the new service, but equally clearly
preferred their own national services. They tended to perceive Eurikon as another foreign
channel, rather than their own channel.

"Realities and tendencies" was endorsed by the European Parliament's Arfe' Report
and Resolution. It recommended that the Community's powers in television be expanded,
that national legislation be harmonized and a unified television transmission system be
introduced. This was considered an essential prerequisite for the production of
multilingual European programs. It also advocated the establishment of common
frequency and orbital positions for satellite television, the creation of a central data bank
on film and television and of a European film distribution organization (European
Parliament, 1984a and 1984b). The Arfe' Report and Resolution marked the official
genesis of the ideas of a European Media Observatory and of the MEDIA program. Pan-
European television was thus welcomed as a potential instrument of European integration
and as a counter to the threat of foreign television invasion.

The most important of all Corrrrnunity initiatives in the broadcasting and audio-visual
sector has been the creation of a legislative framework for a single market through the
1 989 "Directive on Television Broadcasting" (Council of the European Communities,
1 989). The latter derived from the "Television without frontiers" Green Paper
(Commission of the European Communities, 1984). The Commission brought a new

perspective to the media market, by asserting that it was an economic activity and

68

therefore under its jurisdiction. By fostering the creation of a single market of
broadcasting, the Green Paper challenged both national prerogatives in broadcasting
regulation and the interests of established public service broadcasters, while it was
supported by commercial broadcasters and advertisers.

The two main policies proposed by the Green Paper were:

1. to ensure that the circulation of broadcast signals and services emanating from
member states was not impeded in other member states;

2. to harmonize European broadcasting regulation so that competition between
signals and services took place on a fair and equal basis.

The latter proved to be the hardest goal to reach. While harmonization of advertising
and program contents were achieved, harmonization of copyright laws was unsuccessful.

Besides offering cultural benefits and an increased European consciousness, a single
broadcasting market would support the competitiveness of European television producers
and enable them to substitute their products for imported works.

A draft Directive on broadcasting was published in 1986 and contained the
Commission's specific proposals for regulation of broadcasting to achieve a single market.
Its main thrust was the promotion of freedom of expression and of freedom to prOvide
broadcasting services across the EC. It also aimed at increasing the production and
distribution of European television programs, as well as stimulating the development of a
modern communications infrastructure in the Community. The single market would, in
addition to its economic goals, promote "important objects in the fields of cultural policy,
information policy, and policy designed to promote European integration" (Commission of
the European Communities, 1986). Culturalist interests had thus succeeded in including
their perspective and concerns into Community broadcasting policy. However, between
publication of the draft Directive (1986) and promulgation of the actual Directive (1989),
the balance of forces between the "econorrrists" and the "culturalists" changed again. The

final Directive (Council of the European Communities, 1989), reflected compromises

69

between the rival goals and interests of liberals and interventionists, culturalists and
economists. The objectives included in the Directive were:

1. the creation of a common market in television broadcasts and program supply;

2. the promotion of independent production and distribution enterprises, in particular
small and medium sized enterprises;

3. the stimulation of the audio-visual sector in countries with low production capacity
and/or in restricted language areas;

4. the establishment of minimum standards for television advertising and sponsorship;

5. the establishment of a European content quota;

6. the affirmation of the right to reply;

7. the protection of minors from undesirable contents, especially programming
containing violence or pornography.

According to Collins (1994), the most important effect of the Green Paper
"Television without frontiers" and of the Directive of 1989 has been to increase
competition within the national (or language) television markets, rather than to create a
single Community-wide broadcasting market. Even without formal barriers to entry,
Community audio-visual markets remained stratified on largely national and linguistic
lines. "Changes in regulation and establishment of subsidy programs have done little to
rupture the cultural and linguistic membranes which separate European television viewers"

(Collins, 1994).

New technologies: satellite, HDTV, cable

Technological and cultural determinism once again influenced Community policy in
the 1986 Directive on satellite television standards (Council of the European
Communities, 1986). It was believed that European cultural integration and the

Community's electronics industry would be largely promoted through the adoption of

70

common television standards”. Adoption of a Community standard for High Definition
Television would, it was thought, lead to the establishment of a single market for new
communications technology. The common standard which was adopted by the 1986
Directive was the MAC standard, but the Community requirements were largely
disregarded by the major satellite channels (Luxembourg's Astra satellite used the PAL
system) and the systems that adopted the MAC standard were disadvantaged in the
competition with other channels, because the cost of receiving equipment was notably
higher than for PAL equipment. In fact, adoption of the MAC standard would render the
existing SECAM and PAL TV sets obsolete. Notwithstanding pressures from broadcasters
for the adoption of a standard such as E-PAL (extended PAL), which would be
compatible with PAL receivers, the Community decided for MAC, because it offered an
incremental route to a European HDTV standard (Collins, 1994). The Commission
planned that D2-MAC transmissions in standard 4:3 picture size ratio would be followed
by 16:9 D2-MAC and then by 16:9 HD-MAC. It was hoped that the early adoption of a
European standard would provide the Community a competitive advantage over similar
US and Japanese initiatives. Opposition from the most liberal member state, the UK, faced
supporting member states, such as France and the Netherlands, the domiciles of the two
leading enterprises in the development of HDTV, Thomson and Philips. The European
Parliament was strongly committed to maintaining a strong European presence in
advanced technologies and thus supported the HDTV policy.

Technical and cost problems have not been solved yet in order for HDTV to have a
mass appeal. Moreover, the European standard is based on analog encoding techniques,
while the US digital standard seems to have better chances to become the established
world-wide standard (Collins, 1994).

 

33 France uses the SECAM standards, while most other European countries adopted versions of the
German PAL system at the time when color television was introduced.

71

The 1986 Directive expired in 1991 and was followed by a new Directive in 1992
(Council of the European Communities, 1992). It reaffirmed the use of the HD-MAC
standard for any HDTV transmission that is not completely digital. It thus opened up the
possibility of digital, rather than MAC services, and in addition did not forbid the use of
non-MAC standards for low power transmission services, such as those provided by the
Astra satellite. The UK, Denmark, Spain and Ireland successfully blocked the efforts of
France, Germany and the Netherlands to reestablish Community requirements for the
exclusive use of MAC satellite TV standards.

Once again, the developments in satellite TV show how Opposing Community goals,
and the need to find compromises between different national approaches, lead to
inconsistencies in Community policy, which is at times liberal and at times interventionist.

A sector of the media industry that has only been marginally addressed by Community
policy is cable television. Most EC countries, with the exception of Greece and Italy, host
cable television networks, both of the Master Antenna TV (MATV) type and of the
Community Antenna Television (CATV) type (Brants, 1986). Later in the 19805 and early
19905, cable dedicated networks were also introduced, such as France's Canal Plus. As of ~
late 1994, penetration rates varied considerably from more than 90% in Belgium, the
Netherlands and Luxembourg, to around 5% in France and the United Kingdom. In terms
of subscribers, Germany represents the largest national market with nearly 15 million
subscribers and a penetration rate of around 45% (Commission of the European
Communities, 1994). The Green Paper on the liberalization of telecommunications
infrastructure and cable television networks (1994) contained some explicit reference to
cable TV networks as part of the European telecommunications infrastructure. The rmin
concern of the Commission was to include cable TV into the telecommunications services
that were to be considered already liberalized, as opposed to the survival of special and
exclusive rights over basic voice and data communications. In the framework of complete

liberalization of infrastructure and services, cable TV networks would immediately

72

become vehicles for the provision of non-reserved telecommunications services. Existing
restrictions would therefore have to be removed. The only countries that allow use of
cable TV networks for the delivery of liberalized services so far are the UK and the
Netherlands (which is still in the experimental phase). France allows the provision of non-
voice services only and rules are lacking altogether in Ireland and Luxembourg. All other
countries had not removed restrictions on the use of cable networks for liberalized
services at the end of 1994. According to the Commission, and this opinion was also
shared by the European Parliament, it was necessary to "adopt as soon as possible the
necessary measures to take full advantage of the potential of existing infrastructure of
cable networks for telecommunications services and to abolish without delay the existing
restrictions in the Member States on the use of cable networks for non-reserved services,
and to adopt measures to obtain optimum utilization of the cross-border
telecommunications networks of railway operators and electricity producers"
(Commission of the European Communities, 1994). Failure to adopt such measures would
impede the development and distribution of multimedia products and services in Europe
and result in loss of competitive margins over the United States, which is most active in
the experimentation of such services. The convergence between telecommunications and
broadcasting is one of the issues covered in the second part of the Green Paper, published
in January 1995. Pilot projects of new services allowed by this convergence include home
shopping (catalogue-browsing, live video displays, "navigation" around the shopping
center from home, viewing property); home transactions packages (banking, making ticket
reservations, buying, selling); "edu-tainment" (interactive video games which entertain and
educate); specialized interactive on-line databases. The lifting of current restrictions will
also encourage the provision of new applications, such as home alarms and telemetry (i.e.,
distance meter reading). Cable operators can offer such services at a significantly lower
cost than telecom operators (The Commission..., 1995). A review of the 1989 Directive

stemming fi'om "Television without frontiers" was also foreshadowed in the July 1994

73

Communication of the Commission to the Council and the European Parliament,
"Europe's way to the information society. An action plan" (Commission of the European

Communities, 1994b).

Early developments in telematics

Although the European Community is not a pioneer in multimedia and interactive
services, it is worth looking at some early and "primitive" forms of "interactive" services
that were developed in some European countries in the early 19705 and were largely
adopted by the mid-19805. They were called "telematics", a combination of
"telecommunication" and "informatics", which indicates "a set of services, different from
the traditional telegraphic and telephonic ones, which can be provided to the users by a
telecommunications net and which allow public and private information and data to be
sent and received" (Mazzoleni, 1986).

Telematics includes services such as teleconferencing, telemedicine, home banking,
teletext and videotex. The latter two were the first telematic services to be developed in
Europe in the 19705. Teletext is a television broadcast of paged information that the user
can call, select and visualize on a television screen. It is not interactive and was first
developed by the UK and France. It is provided by broadcasting companies and falls under
broadcasting policy.

Videotex, on the other hand, canies information through cable to users who can
interact with data banks and visualize the required content on a special video terminal. The
interactivity of videotex is absolutely impersonal, because the information is standardized
and because of the formal nature of the service provider. Videotex pioneers were, again,
the UK and France in the early 19705. While videotex was developed for social reasons,
notably for the hearing impaired, videotex stemmed from economic motives: to make
computerized information available to a large public via telephone networks. The British

PRESTEL started operating in 1979, while the French TELETEL was launched in 1983.

.74

Videotex is a telecommunications services and it managed by the telcos. Unlike the
broadcasting organizations with teletext, the telecommunications companies do not
provide the content to be carried by the videotex medium. The information comes from
various sources, such as travel agencies, stock exchange, real estate, insurance companies,
specialized data banks, banks and, especially, newspapers.

The new telematic services raised several policy issues concerning control over
contents and access to the provision of information through teletext and videotex. Despite
efforts to promote and advertise these services, they have generally not been very
successful with users, due to high cost of decoders, low software quality and technical
difficulties. Videotex was only successful in France, when France Telecom decided to
provide all telephone users with free MINTTEL terminals. Tariffing and advertising were
two key issues in the marketing of videotex services. Short-sighted choices in these
domains caused the new services to score limited success in most countries and thus
frustrated the hopes of those who considered telematic services as boosting factors for
national industries. On the whole, these media were not actively promoted, with a few
exceptions, by any of the interested actors. The industry was reluctant to invest in the new
technology, there was no comprehensive plan for telematics by the EC, and national
authorities in most countries, especially technology followers, failed to stimulate the
demand for the new services (Mazzoleni, 1986).

This is not a very encouraging example for prospective new interactive services,
especially since there are similarities with these early experiments, in that (I) demand
characteristics are uncertain and (2) the more advanced technology is being developed
elsewhere (the United States). The main difference is that the new services will be offered
in a liberalized infrastructure and market context. Centralized control over content and
access to services will be much weaker and private entrepreneurs will most likely be able
to enter the market. It remains to be seen if they will be able to avoid the mistakes that

were made by their predecessors.

75

ISDN

The European approach to the convergence of broadcasting and telecommunications
is best exemplified by the development of Integrated Services Digital Networks (ISDN), a
worldwide network along which data, video, voice can be transmitted and that can be
accessed by users through one identical plug (Hills, 1991). The advantage of ISDN over
separate networks is that it allows the simultaneous transmission of voice, data and images
over the same equipment. ISDN was originally put forward in the early 19705 with the
goal to cut PTT costs, improve the quality of transmission and integrate separate
networks. With the reduction on cost of fiber optics and the requirements on the part of
large users for larger bandwidths, narrowband ISDN34 evolved into broadband ISDN (B-
ISDN)35. Global standards for ISDN were established by the Consultative Committee on
International Telegraph and Telephone (CCIT'T) of the International Telecommunications
Union and International Standards Organization (ISO). I

During ISDN evolution, it became clear that the original idea of service to residential
users was not economical and ISDN began to be marketed as a replacement for private
networks and as an innovation that would reduce costs and increase large users' control
over their communications.

According to Hills (1991), although ISDN was put forward as a market-led
innovation, its introduction in Europe'seems to have more to do with industrial policy and
the provision of a home market for domestic companies. Broadband involves a number of

regulatory issues related to the convergence of broadcasting and telecommunications:

 

34 The basic rate service of narrowband ISDN was divided between two channels of 64 kilobits per second
each that would carry voice and data and one channel, of 16 kbps that would control the signals and
could be used for low-speed data such as facsimile and videotex. For heavy business users, a primary rate
access was available of 30 B (Bearer) channels of 64 kbps and two D (Delta) channels of 64 kbps.

35 The main difference between broadband and narrowband ISDN is that broadband is based on packet-
switching technology using the Asynchronous Transfer Mode (ATM). Potential broadband services are:
high-quality broadband videotelephony, highoquality broadband videoconferencing, l-IDTV distribution
and existing ISDN services. The width of the broadband channels can go up to 132-1384 Mbps, as
compared to 2 Mbps for narrowband ISDN.

76

privacy, the distribution of fixed costs, whether residential users will have to pay for
services they do not use, and tariffs. Most of these issues have not been addressed. As
happened with videotex, ISDN suffers from an "original sin": it was decided upon with no
public debate and, while sold by technologists and P'I'Ts as the transmission medium of the
future, it was devised without consideration of usage or who would pay (Hills, 1991).
Also, no means by which ISDN could integrate into existing systems was successfully
developed. Technological "supply-push" was considered but the "demand-pull"
component was ignored. Thus, in most cases, ISDN remains an "islan " development and

not generalized service.

The role of other European institutions: the European Broadcasting Union and

the Council of Europe

European broadcasters always collaborated with each other, through the International
Broadcasting Union (IBU) first”, the International Broadcasting Organization (OIR)37
after World War II, and the European Broadcasting Union (EBU) after 1950.

The EBU is an association of 39 European and Mediterranean broadcasting
organizations. There are 55 associate members in 33 other countries across the globe.
Members must provide a national service and regional broadcasters are not eligible
(Noam, 1991). They must also be ITU33 members. The EBU was headquartered in
Brussels, which also housed the Technical Center and node of the EBU's networks.
Geneva was the administrative center of the EBU, but in 1993 the Brussels arm moved to
this location (Collins, 1994).

The EBU established a program exchange through the Eurovision system, which was

seen as a way of protecting public broadcasting from commercial broadcasting by

 

36 The IBU was founded in 1925 at the BBC's initiative. . -

37 The OIR was soon abandoned by the Western European countries and was renamed OIRT with the
advent of television. In 1993, after the break-up of the Eastern bloc it was absorbed by the EBU.

33 The ITU is the International Telecommunications Union.

77

providing smaller broadcasters with programs from other countries. The majority (about
80%) of the EBU's program exchanges are sports events and news. An important role for
the EBU is to provide a common bargaining position against copyright holders. An
example of its power is provided by the bidding for the 1984 summer Olympics in Los
Angeles. ABC, after competing with other US networks, paid $1.67 per household,
whereas the EBU, being the sole representative of its members in international purchase
negotiations, had no competition and secured the right for $0.17 per household. The
EBU's cartel power was challenged by the rise of cable TV and satellite TV channels.
Commercial broadcasters who were denied access to the EBU eventually formed the
Association of Commercial Broadcasters (ACT) in 1989, which weakened the EBU's
buying power (Noam, 1991).

The EBU has been collaborating with the European Community and it welcomed both
"Realities and tendencies" (Commission of the European Communities, 1983) and the
Arfe' Resolution (European Parliament, 1984b). In the early 19805, the EBU took the lead
in establishing several pan-European satellite TV services, such as Eurikon in 1982,
Europa in 1985, Eurosport in 1989 and Euronews in 1993 (Collins, 1994).

In the domain of media policy, an alternative forum to the European Community is
provided by the Council of Europe. It was established in 1949 by 10 members. By 1992 it
had grown to 25 and new applications were being considered”. The structure of the
Council of Europe is loose and it is formally held together only by its members' assent to
the European Convention on Human Rights, signed in 1950. The latter guarantees every
person freedom to receive and impart information and ideas without interference by public
authority, regardless of frontiers. Council measures related to broadcasting policy are the

1 982 Declaration on the Freedom of Expression and Information and the 1989

 

39 The founders of the Council of Europe were the UK, France, Belgium, the Netherlands, Luxembourg,
Sweden, Norway, Denmark, Italy and Ireland. Later members are Greece, Turkey, Iceland, Germany,
Austria, Cyprus, Switzerland, Malta, Portugal, Spain, Liechtenstein, San Marino, Finland, Hungary and
the Czech and Slovak Republics. Bulgaria, Poland and former Yugoslavia had applications for
membership under consideration in 1991.

78

Convention on Transfrontier Television, which show similarities with the European
Communities' Directive on "Television without frontiers", but are fundamentally different
in their approach. The Council of Europe focuses less on economic issues than on issues
of personal freedom. Freedom of expression seems to be a major goal. The Council also
takes positive action in media policy, by sponsoring multinational coproductions of
programs. The aim is once again to foster European culture and identity, by "encouraging
closer unity between peoples as well as the mutual enrichment of cultures...Without the
increased and competitive audio-visual production, there is a real risk that the new
channels will be fed by re-broadcasts of existing programs or extra-European programs"
(Council of Europe, 1991). In 1988 the European Support Fund for the Co-production
and Distribution of Creative Cinematographic and Audio-visual Works (Eurimages) was
established, following a French initiative. The rationale of Eurimages was (1) to develop
the program industries, (2) to utilize the new communications technologies, and (3) to
promote Europe's cultural identity. Interestingly, France had attempted to promote a
similar initiative within the EC MEDIA program, but opposition from Germany, Greece,
Denmark and the UK blocked it. Eurimages is thus an example of what Collins (1994)
calls "European variable geometry", that is, "the use of European institutions outside the
European Community by a member state of the Community, to achieve goals unachievable
through the institutions of the Community."

No initiative has been taken either by the EBU or the Council of Europe for the
development of multimedia and interactive services. The obvious conclusion, thus, is that
neither European public broadcasters (represented in the EB U), nor European
governments (represented in the Council of Europe) have deemed it necessary to take
steps for concerted pan-European action in this new industry. The European Community

itself has so far addressed this issue by promoting several programs in the field cf R&D‘O.

 

40 Examples are the Research in Advanced Communications technology in Europe (RACE) program and
its continuation, the Advanced Communications Technologies and Services (ACTS) program. These
initiatives address the following areas: interactive digital multimedia services; photonic technologies;

79

Efforts in the provision of multimedia and interactive services are largely national in
character for the time being. The awareness of a significant threat from non-European
countries, notably the United States, to be first comers and thus establish technical
standards and market power, although present in EC documents (Commission of the

European Communities, 1994), has not yet affected other pan-European institutions.

 

high-speed networking; mobility and personal communications networks; intelligence in networks and
services engineering, quality, security and safety of communication services and systems. Another
program is the Telematics Applications program, for projects concerning the application of
telecommunications and of information technology in areas of importance to the economic and social
development of the European Union.

CHAPTER 6

CONCLUSIONS AND RECOMMENDATIONS FOR FURTHER RESEARCH

This chapter attempts to answer the second research question and identify the main actors
in the broadcasting policy process and their interactions, both in Europe and in Italy.
Recommendations for further research are given both for the European framework and for
analysts of the Italian telecommunications and broadcasting industries.

The preceding chapter attempted to answer the first research question with which
this work is concerned. The aim of the above section was to analyze the main features of
European broadcasting policy, with particular emphasis on new technologies, such as
cable TV, satellite TV and interactive services. An extensive overview of Italian policy in
the field of broadcasting and new media has been provided in the first three chapters, as
well as examples of US and European initiatives in interactive services (chapter 4).

The last concern of this work will be to draw conclusions from the information that
was gathered above, regarding the main actors involved, their motivations and
interactions. The theoretical framework within which this analysis will be conducted has
been called "consociationalism" (Hills, 1991) and was first developed by Arend Liphart in
relation to the Netherlands. Liphart analyzed that society as an elitist one, that was
divided into groups more concerned with themselves than with each other. Each of the
groups was represented in proportion to its numbers within the various state organs and
layers of elites. Decision making took place through a cartel of elites in which interests
were traded off against each other, until consensus was reached. Further, in order to
deliver its portion of the trade-offs, the retention of stability of the political system
demanded the control of each of the subsegments by its elite. Paul Taylor (1990) extended

the concept of consociationalism to Europe and its political mechanisms:

"Integration in the sense of strengthening the regional functional systems may
help to sharpen rather than soften the cleavages in the existing society of
nations...Members of the cartel of elites...will have an interest in increasing the

80

81

size of the cake, and the share obtained by their own segment, whilst at the same
time protecting the distinctiveness of their segments in comparison with others,
since they serve as each member's constituency and power base."

The interests of the elite of any one segment are not necessarily the interests of the
general population. According to Taylor, the elites become more determined to strengthen
their control over their segment of society. Thus, regional integration "helps to reinforce
the anti-democratic tendencies of elites" (Taylor, 1990).

As applied to the European Community, consociationalism suggests that there are
competing national alliances of state bureaucratic and business elites. The European
Commission, on the contrary, seeks to move power to the center and thus undermine
national sovereignty on which the consociational model is based. Within the EC, tensions
have arisen over the pace and extent of the economic and political integration that should
take place. Generally speaking, the conflict has been between those that view Europe as an
integrated federal entity with power skewed toward the center (Brussels) and those who
see Europe as a federation of sovereign states with minimal harmonization at the center.
The theory of consociational democracy helps explain why some national governments
resisted to the European Commission's entry into the cultural and brOadcasting field. The
political elites of the UK, for example, feared that the increasing power of the EC would
undermine their control over their own cultural industry, which was heavily regulated at
the national level.

According to Hills (1991), consociational theory also explains why there is
fundamental lack of concern at the EC level for the societal implications of the new
technologies. The political and economic elites are more concerned with pursuing their
own interests than benefits for individual citizens. This would explain the substantial
failure of videotex and teletext services and the substantial difficulties encountered with
the adoption of the MAC satellite standard and ISDN. All these technologies have been

developed and adopted by the technocrats and the political elites of Brussels and the

82

national governments with no regard to demand characteristics coming from potential
users. There is a risk that the introduction of new interactive and multimedia services will
follow the same path. National governments and the EC are concerned with technological
innovation as a means to achieve competitiveness on the global market. Technological
leadership is viewed as a necessary means to acquire a dominant position on the world
scene, both politically and economically. This is clearly what pushed the French
government to invest heavily in satellite technology and lobby for the establishment of the
European Space Agency. The French struggled at the European level in order to get their
TV and HDTV standards accepted, because the country whose standard was selected for
the Community would gain markets, revenue and political prestige. Both in the PAL-
SECAM debate and in the MAC-D2 issue, French national champions, such as Thomson,

fought hard to win over German and British rivals and achieve technological supremacy

(Hills, 1991).

The main actors .

As has emerged from the preceding chapters, several actors are involved in media
policy-making and they control a segment of the decision-making process. These are: the
electronics and media industry, the national political system (parliament, government,
ministries, political parties), organizations specifically related to mass media and
telecommunications and transnational organizations.

The industry's main goal is generally the development of new technology, both
hardware and software. The political argument that is most frequently used is the need to
expand national know-how, although their hidden agenda includes economic benefits
(Siune, Sorbets & Rolland, 1986). Industry lobbyists will strive to gain protection for their
sector through government policy. This logic has led to the creation of national champions

in the electronics industry, such as Thomson in France and Philips in the Netherlands.

83

An example of the power of the industry is the RAI-Fininvest duopoly in Italian
broadcasting. The 1990 Broadcasting Act clearly reaffirms these two actors' pre-eminence
and does not attempt to limit their power. The strength of the media industry in Italy is
also confirmed by its strong links with the political elite and by its influence over the public
opinion. For example, the referenda of June, 1995, gave Italian citizens a chance to
express their opinion over the issue of media ownership. Leftist promoters of the referenda
expected that the preceding debate and the generalized atmosphere would be adverse to
Fininvest, but the majority voted against the proposed limitations of TV networks
ownership. According to some critics, this result was at least partly caused by a skewed
access to the media, and especially the Fininvest channels, by the supporters of the
referenda.

Outstanding examples of industry pressure at the EC level are the attempts at
protecting the film industry through the MEDIA program, as well as other initiatives, such
as ESPRIT and RACE“. '

The national political actors have a very important role, especially in European
countries. The telecommunications and broadcasting sectors have always been regarded as
strategic and related to issues such as national identity and culture, therefore governments
and parliaments have tended to control the communications infrastructure and the
broadcasting ' organizations as much as possible (Siune, Sorbets & Rolland, 1986).
Historically, until the 19805, telecommunications and broadcasting were state
monopolies, operated by state departments or by state-owned companies. Only recently a
process of corporatization and privatization of these organizations has begun in some

European countries and competition by private operators has been allowed. This trend

 

4‘ The main aim of ESPRIT (European Strategic Programme for Research and development in
Information Technology) is to strengthen the concept of a large homogeneous home market for European
firms. Research in Advanced Communications technology in Europe (RACE) has as its objective the
establishment of a European-wide integrated broadband communication system consisting of the network
and the broadband services to go with it. Both programs involve the participation of twelve large
European firms. '

84

started earlier in the broadcasting and cable sectors, where private enterprises were
licensed as early as the 19505 in the UK42(Hearst, 1992).

There are three possible attitudes of governments and parliaments toward
technological innovation: they can either actively promote the development and adoption
of such technologies (as has been the case for France); set the rules of the game, but stay
out of it (the UK is an example); or remain inactive, make delayed policy decisions and
therefore increase the uncertainty that always comes with technological innovation. Italy is
an example of the latter outcome. Policy makers have always lagged behind the
technological and market trends. Notwithstanding the need for a clear set of nrles,
parliament has not been able to produce adequate, all-encompassing laws to regulate the
broadcasting sector. The market has clearly taken over the lead, as is evident in the delay
with which the 1990 Broadcasting Act sanctioned a de facto situation that had been
established since the early 19805.

The policy-making process in Italy is definitely too slow and not always consistent
with one direction. Frequent changes in governments certainly do not facilitate the
establishment of a strong dirigiste approach as in France, or a clear regulatory framework
as in the UK. The result has been a total oblivion of the potential for economic and
cultural development coming from new technologies. No attempt has been made to
establish concrete initiatives linking the growth of radio, television, technological
innovation and the development of strategic . industrial sectors (electronics, opto-
electronics and aerospace) in the pursuit of a general objective of modernization (Richeri,
1992). Italy is the only large European country that faces the advent of the twentieth
century with no cable or satellite TV infrastructure. Whether the good intentions
expressed recently in the bills under discussion will actually lead to concrete initiatives to
make up for the time lost remains to be seen. The already mentioned incident between Bell

Atlantic and STET in the Stream experiment (see chapter 3) does not seem encouraging.

 

42 The Independent Television Act of 1954 created the first commercial television in the United Kingdom.

85

On the other hand, the obligation to fulfil the EC schedule for the implementation of an
information society might provide the needed incentives to take concrete and consistent
action as soon as possible.

Another characteristic of government institutions, especially ministries, is their
working according to a bureaucratic and administrative logic. The existence of established
rules and regulations often is an obstacle to the adoption of innovations. Ironically,
ministries of communication often are the last to adopt new technologies for their own
organizations and are generally slow at making new regulations. An example is the
frequency repartition and allocation process in Italy: it was so slow, that frequencies ended
up being occupied on a first come, first served basis and often illegally.

Moreover, ministries involved in the policy-making process are often more than one
and they not always share the same goals and interests. For example, the French minister
for communication has dominance on matters of structure and a certain influence over
broadcasting content. The minister of industry has control over industrial aspects of
broadcasting and these two ministers sometimes disagree on conrmon issues (Siune,
Sorbets & Rolland, 1986). Attempts at co-ordinating different ministries, such as the
French "mission interrnirristerielle" and the Italian "comitato interministeriale" are a step in
the right direction.

An important role in broadcasting policy is played by political parties. In Italy, they
have been able to influence programming content of the RAI channels ever since the
beginning of television broadcasting. The same has happened in France (Browne, 1989),
while the BBC has always been more independent from direct party control.

At a different level are the national organizations that operate telecommunications and
broadcasting. They are generally at least partly state-owned and therefore subject to
political pressures. Appointment of executives and personnel is often done by the
government or parliament. In Italy, for example, RAI is governed by a board of

administrators that are appointed by a parliament committee. STET's majority is owned by

86

IRI, a government holding company for industrial enterprises. These institutions, when
they have a monopoly in the provision of telecommunications or broadcasting services, are
not likely to give up their power position and will therefore favor a continuation of the old
system. RAI managed to get a law approved that totally frustrated all attempts to create a
cable TV infrastructure in the 19705 and now STET is trying to keep control over the
telephone network and take on the task of wiring the country for interactive services, in
order not to let private competitors enter the market. It faces the contrasting interests of
potential infrastructure operators, who are trying to influence the legislative process and
introduce the principle that local areas can be cabled by independent companies that win a
tender”.

Telephone companies and broadcasting organizations are generally very powerful
lobbyists and they are often intimately connected to the government and the relevant
ministries. This is especially true in countries where no separate regulator exists and
regulation has been traditionally carried on by the ministry, which is also involved in the
operation of networks and therefore combines the roles of the regulator and the regulated.
Efforts are underway, in Italy as well as in all other European countries, to establish
independent regulatory authorities, as decided by the EC. The Italian Guarantor for
broadcasting and publishing, created in 1990, and modified by the 1995 bill, is an example
of the need to regulate broadcasting through an independent body.

A more flamboyant case of the need for regulation and separation of competencies is
the recent appointment of Mr Silvio Berlusconi as Prime Minister in 1994. Being the
owner of Fininvest, be controlled the three major private TV networks Canale 5, Italia 1
and Rete 4. A5 Prime Minister and leader of the majority coalition in Parliament, he also
had power over the three RAI networks. This, added to his interests in the printed press,
concentrated power over the major media in Mr Berlusconi's hands. A few months after

his government fell, Mr Berlusconi went as far as proposing that Fininvest be sold to

 

43 See chapter 3.

 

87

STET, thus creating a huge holding for the control of both telecommunications and
broadcasting. Obviously, Mr Berlusconi still being the leader of the relative majority party
and having appointed the board of IRI, would retain indirect control over the new
company and, as opposition press hinted, be many billion lire richer or get a controlling
stake in the new STET in exchange for his Fininvest (Turani, 1995). This proposal was
later withdrawn.

National political and industrial actors interact with each other and with other
countries' national forces through transnational organizations such as the European
Community, the EBU, the Council of Europe, the European Space Agency (BSA), the
IT U. All these organizations are powerful players in the European framework and their
goals and objectives range from economic growth, employment, integration (EC), to
professional cooperation (EBU), to promotion of European culture (Council of Europe),
to technology development (BSA) and standardization (ITU). Some of these institutions
are essentially political in character, while others are technical or foster industry and
operators' interests. They are fora for debate and decision-making at a pan-European level
and national players do their best in getting their own views accepted by the other member
states. At the EC level, the most powerful body is the Commission, because it has both
legislative and executive powers. The European Council of Ministers is also an influential
decision—maker, because it emanates Directives for the implementation of the
Commission's policies. The weakest body is the European Parliament, because it has no
substantial powers.

It has been shown in chapter 5 how difficult it is to reach a common policy on cultural
and broadcasting matters within the EC. Added to that is the difficulty of attaining
enforcement of EC Directives in the member states. The European content quota on
broadcasting, for example, was not enforced in the UK, where large amounts of US

programs are shown that exceed the limitations set by the 1989 Directive.

88

The EC member states feature very different national telecommunications and
broadcasting industries, with different degrees of liberalization and privatization. Although
the goal is to create an integrated and harmonized Community, these differences must be
accounted for. Some member states adopt EC measures quickly, others are slower and
attempts at unduly protecting national champions against foreign competitors are not

infrequent.

Recommendations for further research: a threat to democracy?

While, formally, decisions are made by parliaments and other institutional bodies, real
power is often exercised by industrial or financial actors that pursue their own interests at
the expense of the general interest. The general public can only indirectly and only to a
certain extent participate in the decision-making process. When it comes to making
decisions about new technologies, the public is not very likely to have enough information
about technical, economic and financial matters involved. Experts and politicians decide in
their place, as a democratic political system demands. The question with which this work
is concerned, is whether the democratic process works in the interest of the general public
or whether it results in a power play between different actors that pursue distinct and not
general public interests, related only to a small segment of the global picture. It is
important to ask who reaps the benefits of the adoption of new technologies and at whose
cost it is carried out. Technology in itself is neutral, although it carries the values of those
who invent it. The way technology is deployed can make it elitist in the distribution of its
benefits. Technology can increase democratic participation or widen the divide between
rich and poor, between "haves and have-nots".

Technology in the media field undermines governments. The flourishing of TV, cable
and satellite networks introduces new means of communications that cannot be all

centrally controlled. On the other hand, the new media operate in someone else's benefit,

 

 

89

that is not necessarily more desirable, such as advertisers, who support the media by
acquiring commercial time.

Although governments have less power over communications networks, they are still
concerned with boosting R&D expenditure in order to support national or regional
industries and thus acquire or retain competitive advantage in the new media. This
approach, which is clearly visible both at a national and a pan-European level, focuses
attention on the interests of large companies, while ignoring the social organization of
technology within the nation-state. The distribution of technology among citizens is of
little concern to decision-makers. At the EC level, for example, decisions concerning new
technologies are made by PTTs, manufacturers and large users. No accountability to a
wider public is required. The EC itself is a system of trade-offs between national
governments, each concerned with their industry's competitive advantage. While decision
making by technical experts seems rather inevitable, it also involves choices on 'how the
technology will be organized in terms of access and control. Technologies such as Direct
Broadcast Satellite, High Definition Television and Integrated Services Digital Networks
have come out of these fora. Interactive and multimedia. technologies are more than likely
to be treated the same way. The high cost of these services will be shared by governments,
advertisers and users. Will citizens have to pay for the infrastructure even if they don't use
the services? If the money comes from their taxes, the answer is yes. Who will be able to
afford interactive services on a "pay-per" basis? And who will pay for lost investments and
failures, if the anticipated demand for advanced services does not come true?

If interactive media are accessible only to content providers who can afford it,
minorities and non-profit organizations are likely to be excluded, unless regulations create
the conditions for groups with low purchase power to participate. Who will pay for
distance education and telemedicine? The user or the community (which, once again,
includes the user)? What will be the consequences of the new technologies in social terms?

Will it make all users couch potatoes, or active consumers of useful services? Will human

90

interactions increase through the use of advanced technology or will they give way to
interactions with computers and TV sets? 15 the new plurality of contents going to enlarge
cultural horizons or dump "junk" or: people?

It is crucial that appropriate regulations are in place to allow the user to take control
of the immense potential of the new broadband media. If this does not occur, private
organizations will try to control individuals. Citizens will be delivered as consumers to
advertisers.

In the short term, broadband delivery of TV is a means whereby telephone companies
can modernize the local network, by substituting copper wire with coaxial cable or optical
fiber. It is also a strategic response to potential competition for the local loop, the most
expensive and inelastic part of telcos' revenue from radio-based technologies and cable
TV. In Europe, broadband is seen as a means to create integration and to build a
European identity. The interests of the EC and of telephone companies coincide and, thus,
everything will be done to foster adoption of new services and infrastructure development
(Hills, 1991).

A basic question needs to be addressed. In most European countries, it is taken for
granted that governments, government owned institutions or the EC (which is also a form
of government) take the initiative to promote new technologies. On the other hand, in the
United States and, to a certain extent, in the United Kingdom, investment decisions are
made by private companies. According to the rules of the market, several of these private
initiatives will fail and only the ones that meet demand will survive. This might mean a
waste of resources, but at the end consumers will get what they want and suppliers will
sell what they produce. In a centralized framework, on the other hand, decisions are
generally based not only on market considerations, but they will be influenced by social,
political and other concerns and thus not necessarily meet demand. The examples of
videotex, teletext, HDTV and ISDN support this statement. European decision makers

should thus consider the possibility of letting private subjects enter the market of

91

multimedia and interactive services to a larger extent than in the past. The United States
might provide an example of a possible future scenario. Reliance on the market mechanism
does not mean absence of regulation, though. The rules of the game should be clear and
fair, so that the public interest does not come short.

Although the public opinion supports the launch of multimedia and interactive
services as the gateway to the information society, it is worth devoting some further
thought on which services really add some value to the average citizen's everyday life.
Many of the-proposed services are likely to find no demand and disappear. As was pointed
out in chapter 4, it is too early to have a precise idea of what consumers want and how
much they are ready to spend on the "information superhighway". A serious effort should
be made to understand and anticipate people's preferences and thus direct investment
efforts in the right directions.

The next issue is: how should broadband be regulated, as television or
telecommunication? One answer is that broadband operators should be regulated as
common carriers, with content provided by third parties. But no company wishes to take
the financial risk of building infrastructure only to have no control in the programs that
determine its return on that infrastructure. The provision of services, even though through
separate subsidiaries, is a more likely solution. However, the distinction between
transmission and switching versus content is increasingly blurred, since carriage of signals
and content are getting integrated. An example is Microsoft's software Windows95, that is
attempting to embed a network link (The Microsoft Network) in the operating system.
Further, there would be a need to grant access to independent service providers, like the
Open Network Provision arrangement that has been adopted for telecommunications
networks. Broadcasting would be seen as a further value-added service. Would public
broadcasting then be no longer distinct from commercial broadcasting? And would it be

paid for in a single, bundled package that includes everything at a high price (Hills, 1991)?

 

92

Although this might be a possible long term scenario, it is not very likely that public
broadcasting and existing cable TV operators will easily give up their segment of the
market. As with the liberalization of telecommunications, political, economic and social
factors will outweigh the technology push. The current distribution system, cable TV
companies, satellite broadcasters and public broadcasters will be ranged against telephone
companies, component and optical fiber manufacturers, and the European Community.

According to Hills (1991),

"the European Community has failed to address the question of what rights
citizenship of Europe entails. While itself extending its power and autonomy
through the liberalization of private interests and the undermining of its member
states, it has dramatically failed to address the question of democracy in Europe.
In both broadcasting and telecommunications, its policies mimic those of the
United States, but without the safeguards of competitive institutions, which
produce public debate. It emphasizes econonries of scale rather than diversity;
large-scale technology push rather than diffusion and access. Hence, it
undermines the very innovation and the very notions [sic] of European
democracy it wishes to promulgate."

Although this is not necessarily an unbiased opinion, it suggests that more than the
market mechanism is needed in order to address social and political implications stemming
from the adoption of new technologies. This holds both for the national and the pan-
European level. It is all the more crucial in the wake of the potential enlargement of the
Community to Central and Eastern European countries, whose telecommunications and
broadcasting infrastructures are not nearly as developed. It is important that further
thought is given to these issues and that access to the debate is provided to all classes of

citizens.

Recommendations for Italy
While the above considerations are also valid for s‘ingle countries, including Italy,

there are some points about that country that deserve to be underlined.

93

The debate is still going on as to what kind of regulatory authority should be
established, whether it should be limited only to telecommunications or it should include
television competencies. Some experts maintain that the convergence of technologies
requires the pooling of all competencies in one regulatory authority, while others prefer
the separation of two activities that are still too different (Debenedetti, 1995). Further
analysis of other countries' experiences and the Italian specifics is needed, because
regulation will play a crucial role in the liberalization of the telecommunications market. In
particular, it worth analyzing whether the British model of a monocratic, independent
regulator is more suitable than the US model, where a collective organ like the FCC
depends mainly on Congress for financial and legislative input. The situation as depicted
by the latest reform bills seems to be pending in favor of the US model, but further
thought should be given to this issue.

Also, further research is needed regarding the desired market structure of the future
telecommunications/cable TV industry. There is no agreement on whether STET should
be a monopoly infrastructure operator both for telephony (which it is already) and for
cable TV (which it is trying to become). According to some economists (Morganti, 1995),
econonries of scale and scope demand that STET complete the wiring of the country that
is already almost complete for long distance routes. Others (Debenedetti, 1995) are
against a STET monopoly, because it contradicts the liberalization of the market, leaving
competition only among service providers, but not at the infrastructure level. According to
them, other licenses should be given to competitors, but it is not clear what is the optimal
number of licensees. As has been underlined for Europe in general, Italy might want to
consider opening up the market of new technologies to a large number of private
entrepreneurs and let supply and demand work out the definitive industry structure. Even
the idea of dividing the country into local areas for cable TV, although it apparently moves
decision-making fi'om the center to the periphery, is still not a market-led solution,

 

94

because the local areas would be defined by some central (political) authority and not left
to the initiative of private market forces.

More basically, the history of Italian broadcasting shows how strongly market forces
influenced the policy-making process. The absence of any pressure for a change in the law
on cable TV might lead to the question whether the Italian viewers really want cable TV
or whether there will be any entrepreneurs ready to supply the services. The abundance of
broadcast TV networks and stations, both national and local, available to the public at a
low price, is in fact a high entry barrier for new operators, that will have to find market
niches or provide really innovative programming in order to acquire market shares.

A third issue, that is related to contents, concerns programming. With the advent of
interactive and multimedia services, several hundred channels will be available. So far, in
Italy, all main TV networks have been broadcasting programming that appeals to large
audiences and does not specialize in any particular issue. The only exceptions are two pay-
TV channels, Telepiu' Uno and Telepiu' Due, the former of which broadcasts movies,
while the latter specializes in sports. More thought should be given to the contents that
will fill those hundreds of new channels. The transition to narrowcasting for specialized
audiences is inevitable and requires a corresponding increase in the production or in the
importation of programming. The availability of new contents should not be taken for
granted and some research is needed in that area.

Last, but not least, it is worth the effort to investigate how alternative
communications networks owned by electrical utilities, railways and the freeway system
could be utilized for the provision of new telecommunications services, whether
interactive or not. These are part of existing infrastructure, ready for use and just need to
be addressed to new purposes, thus creating effective and immediate competition for the

existing STET monopoly.

 

 

BIBLIOGRAPHY

 

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95

 

96

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Broc

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