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 Friday, October 27, 2006

United Kingdom's telecommunications regulator Ofcom criticized a proposed European Union law regulating the internet, warning that "it could devastate the continent's internet-TV, mobile-multimedia and online-games industries". Under the EU proposal, many internet broadcasts would face the same requirements on advertising content and production quotas as traditional television.

The U.K. regulator hired Rand Corp. to conduct an impact-assessment study, which outlined the possible negative effects. There are major uncertainties about the future "trajectory" of Internet TV, the regulator said in a note accompanying the study. "Creators will simply distribute their own material via the open Internet, bypassing the need for any form of commercial relationship with other distributors," the regulator said, adding that internet broadcasters would move offshore to escape the regulation. The U.K. position is crucial.

When the EU proposal was first floated last year, London opposed all extension of broadcasting rules to new media. Ofcom spokesman Simon Bates said the U.K. has realized that some new services will fall under the regulation. The key is to gain exemptions for particularly vulnerable services. "We understand that some TV-like services that look like TV and feel like TV warrant some protection," he said, adding that fledgling services should remain exempt. "Our worst fear would be if blogs are required to be regulated like mass-media television services, with rules for example about offensive content." If infant industries are regulated, Ofcom says they risk being pushed offshore. Even though mobile-phone operators could restrict their services available on the open Internet, the EU regulation would give them "incentives to artificially structure businesses so that the regulatable activity of making and creating content takes place outside the EU." The regulation could devastate Europe's online-games industry, the report added. "Rand Europe finds that this industry is global, and that the added value activity of creating and developing games is highly 'portable,'" the regulator writes. "This industry is therefore highly susceptible to increases in regulation in one territory, however small, especially when that regulation does not have parallels in other territories." The regulator recommends "excluding online games altogether from the scope" of the EU regulation.

The European Parliament is scheduled to vote on the proposal by year end. EU governments meeting in the Brussels-based Council of Ministers also must approve it. Intellect, a U.K. trade association, recently said the regulation threatens to stifle services such as on-demand and interactive-video content.

Please see William Echikson's article in Wall Street Journal Europe for more details.