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SPEECH/02/17

Mr Erkki Liikanen

Member of the European Commission, responsible for Enterprise and the Information Society

"Prospects for Digital Radio Development in the European Union"

WordDAB (The World Forum for Digital Audio Broadcasting) Annual General Assembly

Brussels, 8 November 2001

    Introduction

Ladies and gentlemen,

I'm happy to be here today and have the opportunity to express some considerations about radio. This sector constitutes an important part of the European media landscape, with a significant impact in cultural, social and economic terms.

I will talk about what we are doing to support the development of digital radio in Europe. And how co-operation between the Commission services, the industry and EU Member States should be taken further.

But let me start recalling the broader political context in which we are operating.

The new economy and Information Society Services have been on top of the EU agenda since the Lisbon Summit, in March 2000. EU leaders set a new ambitious frontier for Europe: to become the world's most competitive and dynamic knowledge-based economy. To reach this goal, the Commission devised a comprehensive strategy: the eEurope 2002 Action Plan.

The Information Society is and will remain a top priority for the EU. The spread of the new Information Society Services and skills across Europe is in everybody's interest. It can foster economic growth, provide jobs, connect regions, and increase the standard of living.

    The background

Now, let's move from the general picture to the specific subject of today's meeting: digital radio. Before referring to the situation today, I would like to provide some background.

The European Community became significantly active in the area of communications and broadcasting from the second half of the eighties, with different regulatory and promotional initiatives.

On the content side, the 'television without frontiers directive' and the MEDIA programme can be highlighted. On the infrastructure and transmission side, Community legislation has driven the liberalisation of telecommunication markets, and also contributed to the emergence of digital television, notably through the 'television standards directive' adopted in 1995.

At the same time, the Commission's involvement in the radio area has been rather limited. That was justified by the primarily local or national nature of radio, and the absence of a clear European dimension. Under these circumstances, subsidiarity considerations have mitigated any substantive Community intervention.

However, the communications and broadcasting landscape started to change deeply and rapidly under the influence of technological and economic developments, such as the digitisation of information, the convergence of technologies and the liberalisation of communication markets.

The radio sector saw the need to join the 'digital revolution' and developed the Eureka 147 standard for Digital Audio Broadcasting (DAB) in the early nineties.

This was the first European digital broadcasting standard, ahead of the DVB standards for digital television. The industry seemed unanimous that it had found the appropriate standard, and could introduce it in the market with no help. There seemed to be no requirement for any European Community initiative.

But different obstacles, mainly of a financial and marketing nature, have hindered the commercial take up of digital radio. As you all know well, the core of the problem is the 'chicken and egg' dilemma, where receivers remain expensive because of poor demand prospects, but the high price of receivers holds back demand. It has proved difficult to find a business model that breaks this negative circle in view of the traditional free-to-air nature of radio services.

In this context, members of the radio industry turn to national and European authorities for help. They argue that the survival of radio as a distinct media depends on its transition to digital, and that requires the commercial success of DAB. Such success, the argument continues, is difficult to achieve by the market alone. Community authorities are from time to time requested to intervene, given the cultural and economic relevance of the radio sector in Europe.

In fact, it seems the radio industry realises that it has to redefine itself in a new environment of convergence, where digital technologies compete to carry value-added services. This new environment opens new opportunities. In particular, radio services don't need to remain confined to terrestrial broadcasting, they can expand on other networks such as the internet, satellite networks or third generation mobile telephony.

But it also implies challenges, notably trying to develop an independent digital radio platform capable of withstanding competition from other digital technologies.

The radio industry is not alone in facing the pressure from the new challenges. Other media also have to cope with technological changes and struggle to find their role in increasingly competing and dynamic markets.

Calls for public intervention come from many quarters, in particular from those defending free-to-air broadcasting services, in radio but also television. The question is: what degree of public support is appropriate for free-to-air broadcasting services when it has to compete with market-driven pay broadcasting services?

In any case, any public intervention should take place within the boundaries of the new Community regulation for electronic communications. These rules will soon be adopted, precisely in order to address the challenges from digital convergence.

    The new regulatory framework for electronic communications networks some basic principles and implications for digital radio

A key idea in the new regulatory framework for electronic communications is that content and networks aspects should be regulated separately.

The new framework aims to keep ex ante regulation of the communications infrastructure to a minimum, with maximum freedom given to market forces. Content regulation is outside this new framework for infrastructure.

But there is a need to establish a clear distinction between regulation and promotion. The Community has been following this approach in the area of digital television.

Finally, digital convergence implies that any service can potentially be carried over any network. This requires horizontal rules, that is, similar rules that can be seamlessly applied across communication networks. Including networks traditionally used for the transmission of radio services, which are not covered by the current regulatory framework.

Directly linked to the idea of horizontal rules is the requirement to apply them in a technologically neutral way. This means avoiding regulation in favour of certain networks or technologies rather than others, not "pick winners". Any such special intervention, should it take place, must be justified on solid grounds.

With regard to standards and interoperability, open European-wide standards are the goal. But the draft directive on a common regulatory framework indicates that compulsory implementation at Community level must be the last resort. Much better is for standards and specifications adopted by relevant standards organisations to be used by industry on their merits. Under the new communications regulatory framework, the Commission will be publishing a list of standards and specifications whose use is to be encouraged in Member States. The Eureka 147 DAB standard could be included in that list.

There is a clear message from the new regulatory framework: in liberalised communications markets, success or failure are primarily the responsibility of market players.

It is for market players to present consumers with attractive propositions and support them with the right business models. In doing so, they drive competition and innovation in the interest of European citizens.

This being said, the role of public authorities must be to set the appropriate framework for economic activity to expand. To provide the necessary incentives and remove the constraints for private initiative. And they must address market failures where general interests are clearly identified. That is, public intervention is justified when the market doesn't deliver, or does not deliver sufficiently, on certain objectives which are considered politically or socially desirable.

In the case of digital radio, it is for Member States to make this type of assessment on the necessity of public intervention and decide on specific support measures.

So, what should be the role of the Commission, if any? This takes me to certain considerations on the respective roles of the industry and public authorities in the development of digital radio.

    Respective roles of industry and public authorities

Let's start with the industry. One issue that almost always appears in discussions about the digital radio market, and its failure to develop as fast as many people would wish, is the high prices of receivers.

We know that the manufacturing companies have invested in DAB technology and products over the last years. But there seems to be a clear need for further investments. To make DAB products available to consumers at interesting prices, and with sufficient marketing efforts.

Marketing efforts for digital radio must also be made by the broadcasters, who should propose services that are interesting to listeners, and who actively advertise them. Broadcasters can also actively market the digital radio receivers.

Another issue where industry must do more to find a successful way forward concerns the disagreements between the digital radio terrestrial and satellite constituencies. These strong disagreements reflect negatively on activities and decisions that would support the market development of digital radio. An agreement seems necessary to enable the development to move forward.

Now, to the role of public authorities. Over recent years, representatives from the European radio industry have sought intervention from the Commission with the argument that there is a European dimension of digital radio. Members from the European Parliament and national authorities have occasionally echoed this position.

As far as transmission and technology matters under my responsibility are concerned, interested parties have made concrete criticism. They contend that there are related problems between commercial development and regulatory implementation in the Member States.

First, it is argued that the political and legal environment for the development of digital radio is unsatisfactory in certain Member States. This compromises the chances of success in other Member States where the situation is better. The reason being that national markets in Europe are interdependent from an industrial viewpoint.

Secondly, there would be an asymmetry between a nationally-structured broadcasting industry and a globally-consolidated consumer electronics industry. In particular, radio broadcasting consists of national markets, while manufacturers require European scale to produce cheap receivers in big volumes. The political, legal and licensing conditions for the development of digital radio, and therefore its market prospects, vary significantly from one Member State to the other.

Diverging regulatory frameworks and implementation strategies in the Member States would lead to fragmentation of the European market. Also according to representatives from the radio industry, it is not sufficient that the necessary conditions are met in just one or two Member States. Individual national markets are too small to justify the investments required, notably to offer affordable receivers, but also to develop networks and services. Indeed, consumers won't be only seduced by cheap receiver: quality content and services must be also available.

There is also a business model problem here, particularly difficult to solve in the case of free-to-air services, such as radio has traditionally been. Indeed, free-to-air services have a longer period for return on investment and this increases commercial uncertainty. Unlike pay-TV business models, receivers roll-out cannot be subsidised from subscription fees.

Moreover, the cycles to launch new consumer electronic products on the market have become significantly shorter over the last years. New broadcasting products used to have long uptake periods, for instance the transition from black and white to colour television. This is no longer the case.

As a result, interested parties, especially manufacturers, doubt that digital radio can develop first in some Member States and then in others some years later. They insist such development must take place in a co-ordinated way. National implementation strategies must be appropriate but also timely. They must be implemented in parallel to ensure sufficient critical mass, to provide the prospect for a pan-European market.

In short, interested parties, argue that quality and synchronisation of implementation in the Member States are an important part of the problem. They request co-ordinated action at European level.

The problem is not easy, and interesting lessons could be drawn for cases other than radio. The first step is to assess the arguments from the industry. Is it true that there is a fragmented landscape across the EU? If yes, to which extent is this compromising the chances of digital radio? What are the possible solutions and what should be the European added-value? Answering those questions requires that we know the situation on the ground, then identifying the most relevant issues, comparing differences between Member States, and finally proposing solutions, such as best practice guides.

My services have begun discussions with Member States on these issues in the context of the 'Digital Broadcasting Experts Group', created under the ONP committee. Indeed, I've already said it before, the competence lies primarily with Member States, not the Commission. So Member States must decide whether or not radio must go digital and how, what could be the contribution from European co-ordination, if any, and how far that should go.

The aim of the exercise is to bring a contribution from public authorities that would improve the political and legal environment for the development of digital radio. In particular, a contribution that focuses on the alleged European dimension of the problem.

    Conclusion

However, at this point I would like to stress an earlier message. Public authorities, national and European, are only part of the picture. They should aim at improving social and economic welfare by ensuring that competitive markets offer consumers the widest choice. They should also intervene in a timely and proportionate manner to overcome market failure and protect general interests where necessary.

The interaction between the different players involved in converging communications markets will influence market outcomes. Each player should play its role. Whereas public authorities must provide the right framework and incentives, market players must drive the economic activity.

Radio is part of the converging communications and media market. Like in other sectors, the radio industry must therefore come with competitive proposals. That is, viable business solutions in support of services and contents that users will consider worth the money in comparison to other alternatives.

Because, at the end of the day, nobody but the users will decide which technologies and services succeed on the market.

Thank you very much.


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