05.17.2016Enterprise Tech

Part 2 — Content, quadplays and regulation: uneasy digital bedfellows

By: Jo Perrin
Verizon to deliver Virtual Network Services to support digital transformation of enterprises

To what extent should the regulatory authorities govern how individuals consume media?

This was the focus of Tom Dailey’s keynote at the Digital Regulation Forum (UK) in April. Last week, we posted the section of his presentation that discussed the implications of convergence, using Verizon’s strategy as an example of how this plays out in the real world.

In part two of Tom’s presentation, he digs deeper into Verizon’s view on the future of regulation:

It’s clear that regulatory consistency is critically important to continued growth in the European digital single market. Globally consistent rules promote investment and are pro-innovation and good; balkanization of rules and regulations is bad. Why? Because digital or Internet-based services thrive on scale.  Successful Internet services today measure users in the hundreds of millions or billions and operate on a global scale. They follow a set of rules where growth is based on algorithms and is driven by “network effects” – where the value of a service goes up with the number of people using it – for a historical perspective, think universal service in the evolution of voice communication. Once you hit scale, the economies change, and so do company valuations. These Internet giants have perhaps grown so rapidly not only because they are providing services that people want, but also because they have been able to innovate without too much regulatory interference. Regulatory uncertainty and patchwork regulation are start-up and innovation killers. To encourage development of the digital economy, you need to create the right environment for it to flourish, to harmonize and limit regulation.

Regulate Horizontally not Vertically

When it comes to regulation of technology there are a couple of big, yet appropriate, rules:

  1. Regulate only where necessary to protect consumers and competition
  2. Do not try to pick technology winners and losers.
  3. Do not favor one business model over another.
  4. Do not perpetuate regulations and laws that do any of the above things.

These concepts all echo in calls for “a level playing field.” If regulatory silos are maintained for issues that should be dealt with uniformly across all players in an industry, regulatory bias is the result, as well as speed bumps that slow innovation and evolution. This is why we should look for horizontal regulation wherever regulation is needed, pulling out underlying regulations that are no longer necessary or relevant.

Take privacy in Europe, where we currently have both horizontal and sector-specific rules. On the horizontal side, the GDPR, while not perfect, represents a largely harmonized approach to the protection of privacy at all levels of the economy.  It applies to all technologies and sectors, and therefore, does not burden one sector over others. On the vertical side, the ePrivacy directive targets mainly telecommunications providers – electronic communications providers. This is a good example of regulation that has, in large part, failed to keep up with the value system technology and society have assigned to different types of data.

Here’s why. One of the more remarkable outcomes of the digital revolution has been the ability of Internet companies to monetize data.  In one way or another, they benefit from a trade-off between personal information in exchange for services that consumers value, like content search tools or social media platforms.  With this focus on the importance of personal data, the question is: do you still need a sector-specific approach – like the ePrivacy directive – based on the historical regulation of voice telephony providers, rather than on today’s market realities? Shouldn’t the GDPR itself be robust enough to meet the challenges of the online world through its technology neutral approach?

And of course, another reason to regulate horizontally in the technology area is that businesses change, business models change. Look at where some of the best known Internet companies around today started, and where they are now. And think of all the formerly ‘major’ players that today simply no longer exist. The point of all this is that if markets, industries and players all change, it only makes sense for regulation and regulatory models to change as well. Regulation based on sector-specific rules just can’t keep up.

Embrace Disruption

Finally, the Internet is the ultimate disruptor of “the establishment”. No area of the economy or society – business models, regulation, politics or more – is immune from the Internet’s disruptive effects. But we mustn’t fear disruption. Disruption is good, and we need to get used to it and adapt to it.

“OTTs” are disruptive. They break down established systems, and challenge the regulatory establishment. But they are also the product of and empowered by the Internet. In the media space they are removing control over the entertainment ecosystem from the hands of traditional gatekeepers and moving it to the ultimate edge – to the consumer. And consumers, no longer tied to a schedule set by the broadcast networks or pay TV platform operators, are recording, time-shifting and streaming their way to new content applications and delivery models using everything from gaming consoles to smart phone apps. 5G wireless will only expand the options available for consumers to cord-cut away from traditional pay TV platform operators.

One area that policymakers and regulators need to focus on therefore is regulatory modernization, and how to create an environment that fully opens the throttle of innovation and investment so that all members of the ecosystem, from content creators to content distributors, can move the European, and global, digital economies ahead.

If the growth of the Internet ecosystem has confirmed anything, it is that consumers want choices, quality of service and security. Regulators need to promote regulatory modernization and not let regional differences and obsolete or restrictive policies constrain investment or undermine innovation. And everyone should embrace the rise of the consumer that the Internet ecosystem has enabled.

For up-to-date information on Verizon’s views in the policy world, please read our policy articles.

And don’t miss part one of this article: http://news.verizonenterprise.com/2016/05/verizon-uneasy-digital-bedfellows-part1/.