Internet and Interactive TV – A Regulatory Nightmare?

June 30, 1998

Current regulation cannot cope with multiple services delivered over the samesystem – most systems will eventually be able to deliver all services even tothe extent that operators will not know what services are being carried overtheir systems at any particular time. This is a prediction that Oftel, the UKtelecoms regulator, makes in its recent response to the Select Committee onCulture, Media and Sport enquiry into audio-visual communication and theregulation of broadcasting. One of those multiple services referred to will bebroadcasting. The systems will be a hybrid of the Internet, television andtelephony. At the heart of this revolution is digital technology.

Regulators in the UK have been grappling with the implications of convergenceof these market sectors. Judging from the final report of the Culture, Media andSport Committee, ‘The Multi-media Revolution’ (HC 520-I (1997-98)), theconsultation process that preceded it and the current EU consultation onconvergence, it is evident that Internet TV underlines, more than any otherdigital service, the complexities involved in exerting some sort of control overthe commercial and moral environment in which it operates. This articleconsiders the nature of Internet TV and the regulatory issues which affectInternet and interactive TV services in the context of digital television.

Internet TV

Internet TV is, put simply, the merging of the PC and the TV into one.Arguably this will assist in bringing order to the chaos of informationavailable on the web. However, initial formats are simply providing a new meansof access to the Internet, making web browsing and sending e-mail moreuser-friendly by using an enhanced television set rather than a computer.Internet TV, for the purposes of this article, is television with Internetcapabilities attached. Broadcasting on the Internet, or ‘webcasting’, wouldconversely transmit video images via the Internet, the technology for which isin various stages of development. The broad prediction is that the nature andpopularity of television will ensure that the development of Internet TV willoutpace webcasting. Regulation must nevertheless keep pace with both.

Internet TV is characterised by a ‘set top box’ and phone line attachedto the TV giving the television Internet capabilities by attaching it to a webserver. The digital decoder or set top box will become a familiar piece of homeentertainment hardware. It is also a regulatory Pandora’s box. The increasedtechnical sophistication of digital television creates possibilities for newkinds of digital service and for using the digital receiver in new ways. Forexample, the receiver can process more computer applications broadcast to it aspart of the television signal. Additionally, the inclusion of a modem allows thepossibility of a form of interactive television in which the viewer uses themodem to send messages back in response to the broadcast, as well as other formsof interactive services. Consumers will therefore be able to buy a televisionreceiver which has processing power and communications facilities similar to abasic PC. Internet TV conditional access devices enable the consumer to use theworldwide web and to send e-mail. Current versions simply use the televisionscreen to display web pages received via a modem. The next generation are likelyto be integrated with the receiver and may use a combination of data deliveredby broadcast transmission and via the modem using the telephone network. Theprovider of the Internet TV box also provides a service in ‘caching’ themost popular web pages at its servers and doing some re-processing andtranslation where this is not done by the software in the box itself. Theconsumer pays a subscription for this service which may or may not includeInternet access as well.

A product called TV-netEzy has been released in Australia and provides aworking example. This product has a set top box which is based on a 100MHz Cyrixprocessor, 8Mb of Flash memory, a Rockwell 33.6Kbps modem chip, built-in TVoutput and an embedded customised browser. It comes with a semi-customisedinfra-red keyboard and its own customised Web browser. It does not have a harddisk and, as a result, a browser such as Netscape or Internet Explorer is notappropriate. The product works with a smart card which is programmed to providethe unit with details of ISP dial-in phone numbers, a user e-mail address andbilling information. Bigger on-screen buttons and font sizes allow people whoare up to 8€metres away from their TV to read and compose e-mail comfortably.The end result allows consumers to retrieve information from the Web with sound,video and dynamic graphics without needing the full-blown capabilities of a PC.Critics however note that, in the end, all that the set-top box does is to alterthe typefaces and web-page layouts so that the end product can be viewed on atelevision screen.

The WebTV Plus product from Microsoft-owned WebTV has essentially similarfeatures although it does have a hard drive and is potentially more advanced.The package consists of an advanced video chip and television tuner that allowsfor the manipulation and combining of images and data, a modem operating at 56kilobits per second (the fastest rate of communication commercially availableover basic telephone lines), a video modem for downloading Internet data at 20times that rate, and a hard disk capable of storing 1.1bn bytes of information(the same as 12 hours of compressed video or 50 hours of audio). As well ashaving a web interface navigated by clicking on buttons, the product’s mostinteresting feature is an electronic programme guide which gives show times,provides links to a film’s description and filmographies of its stars as wellas team and player statistics during sports broadcasts. Information istransmitted each night and stored on the hard disk. This downloading ofinformation allows for immediate access to the information from the web duringthe broadcast. The downside however is that it provides only selectedinformation and sites to the viewer. However, users are still able to access thewider Internet through a dial-up connection.

There are two major players that appear to be emerging: ‘Microsoft forWindows CE’ and ‘Sunsoft with Java O/S for Appliances’ each attempting toestablish themselves as the preferred de facto standard. Microsoft (a majorplayer since its $425m (US) purchase of WebTV in April 1997) may have theadvantage here due to its dominance of the PC desktop format, which is currentlyhow much of the Internet’s content is targeted to clients. However Java is amore popular language for writing programs and information services used on theInternet and the argument is that Java is therefore the more appropriate format.

Although WebTV is the dominant market leader, in the UK Microsoft does notappear to be having it all its own way. NTL, the cable and telecoms company,recently paid $1 million for NetChannel UK, the European arm of the USinteractive television company. NetChannel?uses Internet software to supplyinformation and home shopping services to PC?and television sets. In the US itis the main rival to WebTV. NTL will use NetChannel?to supply Internet servicesvia television to its cable subscribers. It will also use NetChannel?softwareto provide interactive services. Although WebTV has the upper hand in the US, inthe UK Cable and Wireless Communications and now NTL have both rejected WebTVtechnology in favour of competitors. C&W uses Network Computer, theNetscape/Oracle Group, to provide software for digital television.

Sanyo has also released its version of ‘Internet Television’, offeringsplit-screen viewing – a television programme on one side and Internetmaterial on the other. It also allows viewers to receive NetChannel, describedas a web-enhanced television service that can be personalised for each viewer.For example, the software notices the viewer’s preferences, builds that persona personal television channel by extracting material from NetChannel’sprogramming partners (who include Warner Bros and CBS Sportsline) and uncoversrelevant facts and figures from the Internet that enhance the individual packageof entertainment. This is arguably closer to the desirable combination oftelevision and Internet than WebTV. It is not just replacing television withe-mail and web surfing, but enhancing its capabilities.

NEC is working towards developing software called WebSync which matches the‘sound print’ of voices and noises heard on a television broadcast or videowith related information from the Internet. As the broadcast occurs, alongsidethe television image will flash Web pages of relevant, ‘enriching’information. The first attempt at this was a Discovery Channel documentary aboutthe Titanic aired on 18 January on Japan’s PerfecTV.

WebTV was officially launched prior to Christmas 1996. However the conceptdid not really take off, in part due to the Internet not provoking wide interestin the US at this point. Since Microsoft’s purchase of WebTV and the releaseof two versions of set-top boxes (the ‘Classic’ and the ‘WebTV Plus’), aheightened interest and demand for the product is being experienced. Marketanalysts predict that from its introduction in late 1998 in the UK, Internet TVwill become a significant force here in 2001.

Need for change

Oftel proposes that regulatory responsibility should be placed into the handsof two new bodies. The first, an Electronic Communications Commission, would beresponsible for competition, economic and social policy issues, includingconsumer protection. The second, an Electronic Communication StandardsAuthority, would be responsible for content regulation, including public servicebroadcasting. Where that would leave the ITC is unclear. Whoever has ultimateresponsibility, it is clear there must be change. Already there are strains inthe system. There are overlaps and duplications in the current regulatoryjurisdictions; for example both the ITC and Oftel regulate electronic programmeguides – leading to possible ‘double jeopardy’ for companies and confusionfor customers. The current system of licensing and attaching conditions to theoperation of, or access to, communication systems, whether the licensing ofbroadcast operators or telecoms operators, will become decreasingly viable wherethe operator controls these service characteristics. As the operator’sposition changes, the existing regulatory structure becomes an anachronism.

If the recommendation of the Committee for Culture, Media and Sports isaccepted however, both Oftel and the ITC’s days are numbered. Taking its leadfrom the Consumers Association (which advocated merging the functions of theITC, Oftel and the Radio Authority), the Committee recommends the absorption ofall current regulatory bodies into one Communications Regulation Commission withoverall responsibility for statutory regulation of broadcasting, telecoms andthe communications infrastructure. Its duties would include:

  • regulation of access to communications platforms by both systems operators and service providers, including all issues relating to gateways, competition law, and cross media ownership
  • the compilation of information and the duty to report to Government on policy issues
  • all regulatory actions in support of universal broad band provisions
  • strong encouragement of the development of self-regulation for Internet service providers
  • oversight, for all broadcasters, including the BBC, of broadcast content regulation and the commercial activities of broadcasters, with direct oversight of their implementation.

The Commission would be broken down into sub-commissions, each with the powerto publish its own reports and recommendations which would be subject to theCommission’s approval.

Predicting the Future

The ITC published its written evidence to the Select Committee on 16 Februaryin a report entitled ‘Inquiry into Audio-Visual Communication and theRegulation of Broadcasting’. The report is mainly concerned with the impact ofconvergence of technologies on regulation and the role of the ITC as digitaltechnology revolutionises broadcasting through the development oftelecommunications and computing. However, it is somewhat ambivalent in itsspeculation over the development of technology and the significance of theInternet for broadcasting. There are echoes of this in the ITC’s Response tothe EU Green Paper on Convergence of Telecommunications, Media and InformationTechnology (COM(97) 623), published on 18 May. The ITC acknowledges that it hasrecently become feasible at a reasonable cost for computer hardware to operateat the very high speeds needed for broadcasting quality video applications. Itsuggests that within five years it may be feasible, at affordable cost, for anycreative individual who has access to a high-speed cable modem to provide anInternet home page that includes high quality moving video. In this way theInternet will progress from being a delivery mechanism for text (e-mail) tobecoming a platform for the delivery of sound and vision. The regulation of thatplatform will therefore be of fundamental importance both from the competitionperspective and in respect of content. The ‘gatekeeping’ aspects which haveconcerned Oftel and the ITC over the past year, specifically the regulation ofconditional access systems and the control of electronic programme guides, willbecome equally applicable to the Internet as part of a broadcast medium.However, in dealing with Internet issues, the ITC places particular emphasis onthe regulation of content. At this stage, the ITC favours a self-regulatoryapproach through service providers whilst, in the event of the failure of such asystem, it recognises the need for statutory regulation and the requirement forglobal consensus.

Digital Home Network

The ITC leans towards a vision of the future characterised by what it refersto as a ‘digital home network’ where personal computers and TV sets in thehome are interconnected and linked via a network within the home to externalnetworks, such as digital terrestrial, digital satellite and the Internet – orperhaps to a digital cable system which itself provides access to these (and tohome storage devices such as DVD (digital versatile disk) or digital VCR).

Convergence to the ITC will not necessarily mean the integration of the TVand PC. On the contrary, it is the ITC’s view that it is likely that terminalsfor TV viewing and those for personal computing will remain distinct, notbecause of fundamental technology differences but because of differences in use.The home network concept will obviate the need for integration, since both typesof terminal will be able to have access to each other and to the same range ofexternal networks and home storage devices. The report even expresses a degreeof scepticism as to the viability of the Internet as a platform for qualitybroadcasting and states that it will take a very substantial upgrading for modemtechnology before full-sized, reasonable quality, real-time pictures areavailable on the Internet by means of an ordinary phone line.

Interactive TV

With the launch of digital television just weeks away, a number of operatorsare in the process of developing the software and hardware needed to exploit thepotential of these technological developments. BSkyB?is to launch digitalservices in June. The BBC and other broadcasters are also planning the launch ofdigital satellite services. A number of cable companies are planning to launchdigital television services at the same time. Those digital terrestrialmultiplexes not dedicated to free-to-air transmissions will mainly be used bypay-television services. A number of other organisations are planning to launchTV-based interactive services. These include British Interactive Broadcasting(BIB), the proposed joint venture between BSkyB,?BT, Midland Bank andMatsushita, into which the European Commission has launched an investigationunder Article 85.

BIB will use satellite transponders to broadcast a stream of video, stillpictures and text in a continuous cycle. This ‘carousel’ approach is thesame as that used for teletext services, except that the high bandwidth allowsthe pages to contain graphics and video clips as well as enabling consumers tomove more quickly between them. Consumers will be able to interact with the BIBservers, using the modem and the ‘return path’ over the switched telephonenetwork, to make purchases, request information and so on. Consumers will notpay a connection charge to BIB which will instead earn revenue by providingwholesale services to advertisers, retailers and other service providers whowant to use the BIB ‘interactive domain’ to reach consumers.


Competition issues arise as a result of the technology used to ensure thatapplications can be downloaded without any hitches and that a conditional accesssystem itself is secure against hackers. In the BIB system, applications gothrough a quality control process. If they are found to work correctly, adigital certificate is applied. The conditional access system is used to ensurethat only those applications which have been validated, and have notsubsequently become corrupt, are able to run on the receiver. Additionally, whenthe modem is used to contact the main system, the authentication server checksthe smart card in the set top box. This provides a means to prevent unauthorisedaccess to the system. These safety mechanisms give the system operator theability to control access to the system by third party broadcasters and otherservice providers. These security requirements present barriers or controlled‘gateways’. On top of that, it is envisaged that for the immediate futurethere will only be one electronic programme guide installed in the receiverdesigned to work with the television services provided by a particular paytelevision operator. The electronic programme guide is a type of software in theset top box or receiver which takes data about programmes and services anddisplays these in the form of an on-screen guide to the channels, programmes andservices on offer. Different system operators may also have differentApplication Programme Interfaces (ie the software in the receiver whichinterprets a set of commands telling it, for instance, where to display agraphic or other object on the screen).

There are therefore five major gatekeeper roles enabling a systems operatorto control who has access to the receiver and what services they can offer:

  • the encryption function controlling the smart code
  • the ability to accept or reject interactive applications
  • the Electronic Programme Guide
  • the Application Programme Interface
  • the authentication or proxy server.

The potential for anti-competitive or exploitative behaviour lies where thegateway gives access to a substantial or significant number of customers andwhere there are no adequate or alternative ways to deliver the service inquestion to most of those customers. In the context of digital television andother digital-based services, competition and services provided to the customermight be distorted if, for example:

  • a provider of wholesale interactive services uses control of the gateway to prevent others from using the gateway to offer competing wholesale services
  • competing broadcasters or other third party service providers are prevented from having access to the full facilities of the box
  • competing service providers are excluded from access to the system in order to give competitive advantage to the services provided by the service operator
  • the controller of the electronic programme guide gives undue prominence to its own or particular services.

The Advanced Television Standards Directive 95/47/EC covers the supply oftechnical conditional access services for digital television services. In the UKthese are now covered by the telecommunications services licence and theAdvanced Television Services Regulations 1996 (SI€1996/3151), which came intoeffect on 7?January last year. The class licence requires providers ofconditional access services to offer them to broadcasters on fair, reasonableand non-discriminatory terms. If the licensee provides the technical servicescovered by the Regulations, it must cooperate with the broadcasters to ensurethe interconnection and interoperability of the conditional access system andassociated apparatus. ‘Conditional Access – Guidelines to ensure faircompetition’, published by Oftel on 27 March 1997, indicate how Oftel willdeal with anti-competitive behaviour in relation to the provision of conditionalaccess services, but do not form part of the class licence or the Regulations.

Any broadcaster employing conditional access or access control systems in theUK must therefore have regard to all of these issues. Already, under theregulatory scrutiny of Oftel and the European Commission, broadcasters andinteractive service providers like BIB will find themselves under the directscrutiny of the UK courts applying the prohibition-based regime of the newCompetition Act which seems destined to come into force round about the timethat digital television is getting underway. As regulation tries to keep pacewith digitisation and convergence, operators may find themselves in the middleof a regulatory minefield which they were unaware was being laid about them.


A final word on content. Somebody must take responsibility for it. Theburning question is who. Throughout the UK and the EU the control of illegal andharmful content on the Internet has been the subject of extensive debate. Ofteladvocates self-classification of content by content providers, a system ofoptional access for consumers which allows them to select what type of contentthey wish to access, with both of these backed up by statutory regulation torequire service providers to de-classify content if necessary. The ITC alsofavours a system of self-regulation, although it suggests that it may bepreferable that this should be applied by the service providers themselvesrather than content providers. Should this fail it may be necessary to considera legislative approach as a last resort.

The report of the Culture, Media and Sports Committee follows the lead of theEuropean Commission, ITC and Oftel by recommending self-regulation within theexisting legal framework. The Committee suggests that the responsibility forcontent should lie equally with the service provider and the content provider.However, liability for illegal or harmful content should only lie with a serviceprovider where it is aware of such content and it could reasonably be expectedto act upon it. The Committee is not convinced that further legislative controlis necessarily viable, stressing that it would be impossible to regulate andenforce. The Committee also calls for a global approach to the problemsassociated with content regulation, stating that this is essential for any formof regulation to be effective. But these approaches alone are unlikely to solvethe problem. For example, cultural variations mean that a universal codingsystem for content would be virtually impossible to achieve.


Whichever way you look at it, whether the Internet enhances televisionbroadcasting or becomes a platform within its own right, regulation has become akey issue and the global scale of the Internet will make that issue a difficultone to resolve. The ITC’s conclusion appears to be that there is noconclusion. A different approach to regulation may be required. On content, theprevailing attitude in the UK and approaches to the problem in the US suggestthat self-regulation, focusing on Internet service providers, will form thebasic regulation strategy. This is to be combined with giving the consumer thecapability to control the availability of Internet content in their own homes.

Oftel’s vision of the regulatory future is perhaps more realised. Itenvisages a three-pillar regulatory structure – competition, content, consumerprotection – aimed at coping with convergence of digital media as the roles ofthose operating the digital arena become increasingly blurred. Data andaudio-visual content will be delivered across many distribution networks, withindividual messages routed across both wired and wireless media – terrestrialbroadcast, mobile radio, satellite, cable, fibre and copper – increasinglyacting as substitutes for one another and interdependent on one another. ToOftel the way forward is through the Competition Bill’s prohibitions of abuseof dominance and anti-competitive agreements, together with enhancedregulators’ enforcement and investigative powers. To supplement thesesafeguards, separate rules will be required to cater for those who act asgatekeepers, specifically access control systems operators who escape thelegal/economic definition of dominance so as not to fall outside the ambit ofthe proposed competition legislation, although they had the clear potential tobecome dominant.

As to content, a more technical approach such as that described by Oftel inits response to the EU Green Paper is perhaps more appropriate. Rather than asingle international coding system, attention should be focused on establishinginternational standards for data formats for content coding purposes for eachdelivery medium, in order to promote network and service interoperability. Ifthis could be achieved, the consumer filtering unit (whether embodied inhardware or software) would know where (within a digital data stream) to lookfor content classification information, which parts of the data were relevantand how to interpret the relevant parts. In this way national variations will bedealt with at the point of delivery without the classification scheme beinguniform across different countries. Ultimate responsibility will rest with theconsumer.