A Study on the Regulations regarding Digital Convergence and Related Industries

1. Background of the Study

With the advent of protocolization, broadband connection, content digitalization, and diversification of application, compatibility and inter-accessibility among different communications technologies and their usages are inevitable. In the future, all communications, broadcasting, and Internet services will be gradually integrated on one single online platform. As this digital convergence develops, the differentiation among various industries using different carriers and the corresponding government regulatory measures will eventually be broken at some point. Cross-platform cooperation, integration, and mergers among communications businesses and media enterprises will continue to take place. For cable and wireless telecommunications enterprises and cable television services, provision of all-in-one digitally converged voice, image, digital, and multimedia service will not only bring opportunities for business development in the future, it is also a rigorous challenge. Consequently, maintaining the accessibility of such platforms and preventing dominating enterprises from horizontally expanding their market influence has become a critical issue in competition law and attracted a lot of attentions from the regulatory agencies for market competition and various industries in most countries. In response to this very developments, governments in most countries have made numerous efforts on strategic planning and research for their competition and industrial policies, technical environment, and socioeconomic environment, in the hope of promoting the country's industrial competitiveness through market structure and behavior adjustment, protecting the interests of consumers and sustaining economic stability and prosperity.

As a result of the advancement in communications technology and change in consumer demand, the borders among the telecommunications, media, and Internet industries have gradually become obscure. Digital convergence mainly includes three aspects, namely service convergence, network convergence, and device convergence. With the interactions of these three aspects, the growing obscurity of the borderlines between related industries has triggered cross-industry competition and cross-platform mergers. The borderless Internet has triggered cross-country competitions on the market. Meanwhile, diversification of application services has also led to market competition restrictions and unfair competition. Consequently, on top of formation of new markets and industrial structures, convergence in telecommunications-related industries has also brought new competition issues and challenges.

As far as the problems associated with telecommunications industries are concerned, as fixed communications, mobile communications, Internet, and cable television services are moving fast toward digital convergence, the process of integration or convergence, the constitution, market structure, and market competition of each industry vary substantially and the social responsibility and objectives of different industries are also rather dissimilar. Therefore, contradictions between the targets of mid-term competition policy and long-term competition policy and those of the short-term policy during this process may be unavoidable and it is possible that various compromises and segregation are required. For regulatory authorities of market competition, how to appropriately handle the contradictions between long-term targets and short-term measures and deal with the problems of individual industries presently encounter will be the biggest challenge. Although all markets tend to reach their balances eventually, the regulatory authority has the power as well as the obligation to review and adjust outdated regulatory measures with a more active and more comprehensive approach, in order to expand market scales, eliminate barriers to new participants, and increase price flexibility. With the uncertainties of market development direction, unreasonable market competition environments are mostly the result of unreasonable industrial structures. To the contrary, reasonable environments can always ensure positive market development in the future. Hence, it is necessary to investigate and analyze the current status of industries and systematically examine and sort out the problems presently encountered while applying competition regulations to digital convergence so that feasible solutions can be proposed for the FTC's references in dealing with digital convergence-related cases as well as establishing a set of reasonable guidelines for such industries. .

2. Methods and Process of the Study

On technological level, "digital convergence"means the integration and protocolization employed in telecommunications, radio and TV broadcasting, and the Internet technologies to allow different platforms to provide the same voice, digital and video-audio application services. In the past, telecommunications networks were only able to provide voice services, whereas radio and TV broadcasting networks could only provide voice and image services. The line among these industries was very clearly defined. Nevertheless, with the adoption of protocolization in related technologies, all services (including voice, digital, and video-audio contents) can be provided through the same transmission platform. This development has removed previous restrictions and nowadays consumers have a number of options to choose as their service provider for voice, digital and video-audio content services as well as other application services derived from this development. Therefore, to understand the development of digital convergence, it is necessary to start with the three existing broadband platforms – fixed communications, mobile communications, and radio and TV broadcasting (especially cable TV systems) – and address their problems before it is possible to seek further progress. The content of this study includes an overview on the current status of fixed communications, mobile communications, and radio and TV broadcasting (especially cable TV systems), an analysis of market competition structure, results of industrial surveys, existing laws and regulations, related law enforcing condition, and a review of the problems encountered by the regulatory authorities. Based upon the findings, feasible solutions to improvement of future practices will be proposed.
Once the objectives and scope of this study are confirmed, the three following methods are employed to understand the current market status and problems:

1. Literature analysis
   Related domestic and foreign literatures are collected, read, sorted out, and closely examined to establish the foundation for empirical analysis for the construction of the conclusions and suggestions.
2. Industrial surveys
   Surveys are conducted on industries employing technologies of digital convergence to ascertain the views of these industries toward future development and their problems. This is helpful for the evaluation of the direction of the FTC's law enforcement measures in the future.
3. Analysis of market structure and competition
   The following three methods are used by this study to grapple with current market developments and its problems:

3. Framework of the Study

1. Literature related to the current status and future directions of domestic industries of digital convergence is examined and sorted out to establish the foundation for further research.
2. The current market structures of domestic industries of digital convergence (including the three major broadband platforms of fixed communications, mobile communications, and cable TV systems) are investigated and market competition is analyzed.
3. The views of related businesses toward the development of digital convergence and the problems they encounter with regard to regulations, technology, and market are studied.
4. The FTC's regulations regarding industries of digital convergence, their implementation, and the development of competition advocacy are examined.
5. The conclusions based on the findings of the study and concrete suggestions from the overall review of the problems and dilemmas that domestic industries of digital convergence currently encounter are presented.

4. Major Suggestions

1. Administrative consultation with the National Communications Commission (NCC) has to be reinforced to guide the market competition of industries employing technologies of digital convergence on the right track through competition advocacy and a mechanism for coordination and division of regulatory authority can be created. In addition to the task on the major market competition issues, the FTC must also continue to promote competition advocacy with the regulatory authority for telecommunications to help shape a competitive market structure and industrial environment, as well as correct wrongful practices in market competition. Since this involves some overlapping of the Telecommunications Act, the Cable Radio and Television Law, the Radio and Television Law, the Satellite Broadcasting Law, and the Fair Trade Law, enhanced communications or administrative consultations are required to establish a set of perfected and flexible responsibility division system that complies with the characteristics of the market and current technological status in order to ensure consistency between market competition and the development of the industry, as well as improve the transparency of market control. So far, the FTC has completed administrative consultation with NCC on the radio and television broadcasting market. A mechanism for coordination of division of regulatory authority has been established. Further consultation is required to work on the telecommunications market and consolidation of the 4C industries, so that the competition mechanism for businesses employing digital convergence can be perfected.
2. A reasonable and fair set of information transparency regulations should be established and applied to the key players on the telecommunications market. There should also be a set of criteria for determination of anti-competition pricing conduct to prevent dominating enterprises from abusing their market power. The aforesaid information transparency is the key to a sound market competition mechanism for industries of digital convergence. The FTC ought to continue to urge NCC to adopt the regulations to cover (including but not limited to) accounting information, technical specifications, network characteristics, and application and pricing conditions. The mechanism for determination of anti-competition pricing conduct should be stipulated in the FTC's guidelines for telecommunications operations. For instance, the existing "Equally Efficient Operator test (EEO)"can be complemented with "Reasonably Efficient Operator test (REO)"to prevent dominating enterprises from abusing their market influence so that market competition order can be maintained.
3. Readjustment of cable television services' operating areas, expansion of the operating scale of cable television services, and enhancement of joint law enforcement:
   The FTC has already proposed the expansion of cable television operating areas to NCC and the suggestion has been adopted in NCC's current draft of amendment of the Cable Radio and Television Law. A county or city is defined as the minimum operating area and barriers to new market participants will then be removed. In other words, related businesses will be allowed to apply to run cable television services. Nonetheless, after the amendment of the Cable Radio and Television Law, the FTC should cooperate more closely with NCC to cope with the new market competition environment. Restrictions on mergers between cable television services, concerted actions, and voluntary withdrawal from the market to create regional monopoly has to be tightened through enhanced law enforcement and an early warning system to prevent market competition from undue restrictions or undesirable structural changes on the cable television service market is indispensable.
4. Revision of the FTC's Guidelines for the 4C Industries and promotion of cross-industry operations of fixed communications and cable television services:
   At present, the FTC is revising the "Guidelines for Telecommunications Operations."However, in light of the future trend of adoption of digital convergence and likely new market competition issues arising from the process of digital convergence, it is necessary to revise the "Guidelines for Operations of Cable Television Services"and "Guidelines for Operations of 4C Enterprises"to prevent market competition from undue restrictions or unfair competition. At the same time, when doing so, the regulations on cross-platform mergers should be clearly defined and the corresponding application procedure simplified to encourage and expedite cross-industry operations of communications and media businesses.
5. Assistance in acquisition of program contents for fixed communications enterprises and promotion of digital convergence:
   The infiltration rate of fixed communications enterprises crossing over to video communications services has been low and the cooperative relations between channel program enterprises and cable television services have been long and close. There exists certain business risk and pressure for channel program enterprises to give fixed communications enterprises licenses to run their programs. Therefore, promotion of competition advocacy with regulatory authorities for telecommunications and intellectual property rights should be continued. An appropriate intellectual property rights licensing mechanism advantageous for digital convergence should be established to reduce the transaction costs and communication costs for fixed communications enterprises seeking channel program license. At the same time, the Fair Trade Law must be rigorously enforced to ensure that there is no more obstruction after channel program suppliers give fixed communications enterprises licenses to run their programs.