Examination of Witnesses (Question 100-117)
Mr Simon Persoff and Mr Paul Jevons
23 OCTOBER 2006
Q100 Chairman: I am sorry to push
it, but that seems a pretty un-level playing field. There is a
pretty fixed amount, a reasonably fixed amount of advertising
expenditure that goes round; and if uncontrolled, unregulated
in quantity of advertising goes on in that way, you have the market
advantage. I am not saying whether that is good or bad; I am simply
asking to understand the position for the Sub-Committee.
Mr Persoff: Where we are offering the same type
of service in broadcasting, to the extent it applies to historic
broadcasters it would also apply to us. To the extent that we
are talking about non-linear services, which are not meant to
replace traditional broadcasting but are an adjunct to, we do
state that the existing regulations should not apply to them.
Q101 Chairman: Advertising expenditure
is clearly shifting from traditional television broadcasting to
new forms of communications, is it not? That is a fact.
Mr Persoff: Yes.
Q102 Chairman: I am trying to establish
the facts. The Committee may come to a view or not on these issues,
but if the new technologies of delivering new platforms and so
on continued, as you have argued forcibly, they should be unregulated
in volume of advertising and so on. But if another market segment,
linear, did continue to have such regulation—change perhaps—that
would constitute in advertising and market terms an un-even playing
field.
Mr Persoff: If I could pick up on a point that
Baroness Eccles mentioned, if we did exploit that arbitrage position
and we let us say doubled the amount of advertising on our non-linear
IPTV channel, we would get a lower audit, and as a result of that
we would be able to charge less for that advertising space; and
ultimately consumers would be dissuaded from looking at our content.
Our core point here is that by letting the market decide rather
than regulation decide, you will eventually end up at the same
place. In the absence of regulation, the market would dictate
how much advertising is appropriate.
Q103 Chairman: I think you are being
rather coy, I have to say, in not answering directly. Why did
Google pay hundreds of million of pounds for YouTube, currently
a loss-making venture, if they do not think it is going to bring
an awful lot of advertising? Just be straight with us; surely
that depends on there being a pretty free market in advertising?
In other words, the market place anticipates a shift in where
advertisers go: is that not right?
Mr Persoff: I think you can distinguish between
advertising and too much advertising. Clearly, I do not want to
speak for my industry colleagues at YouTube or any other company,
but clearly they will make a certain amount of money from advertising,
and clearly there is a benefit from that. But if all of a sudden
they replaced half the screen with advertising or there was a
pop-up appearing every second, then sooner or later customers
would get thoroughly dissatisfied with that service. As a result
of that, they might well decide to use an alternative service
that did not have such a high level of advertising. Clearly there
will be a shift in advertising from traditional broadcast to the
Internet, which is not only the Internet as defined in the AVMS
but the more general Internet. We, for example, have one of the
most popular Internet website portals in the UK, and we have to
balance the usability of that website against advertising revenue.
There is always a fine balance to be drawn. The market ultimately
decides that because I, as a consumer, would not want to visit
a site where all I see is advertising rather than the content;
I am visiting the site to view.
Mr Jevons: One point I would also add is that
the difference is the point I mentioned earlier with the level
of control and the level of discretion that users have for accessing
through different media. Recently—and the name escapes me—there
was a community website which offers its services free to millions
of customers and it upgraded its services that in a way effectively
allowed it to better monetise its audience. Within the space of
a number of hours it had a petition of half a million from its
customer base, saying "please revert back; we do not like
this". That is the type of customer discretion, customer
reaction, that the Internet and other forums—where they
exist—which would not exist with traditional linear broadcasting.
Chairman: We move on to a related topic,
but at the same time a very difficult one.
Q104 Lord Swinfen: With regard to
the legal and harmful content, do effective mechanisms exist to
control the types of such content identified in the proposal,
such as race hatred? Is the proposal likely to substantially enhance
restrictions on freedom of expression?
Mr Persoff: I should point out that as well
as being Director of Orange, I am also Chair of the Funding Council
of the Internet Watch Foundation, which is the charity established
to work with industry, government and law enforcement, to ensure
that where we, service providers or mobile providers, host material
in breach of certain statutes, that material is removed quickly.
The IWF is a prime example of good self-regulation. There is no
statute behind it. It sets up a process where every single ISP
within the UK, every single hosting provider that deals with this
type of area—if not everyone, then the vast majority of
them—voluntarily removes, takes down, material it hosts
where that material is in breach of, for example, the Protection
of Children Act. That is where—it is the child abuse image
which we at Orange would definitely consider the most repulsive
of types of content out there, and in terms of illegality we would
consider it our prime focus in terms of removing it. This is just
one statute. There are other statutes. There is the new Racial
and Religious Hatred Act 2006 and various other statutes in relation
to different types of such discrimination. The remit of the Internet
Watch Foundation includes racial hatred. I am not sure if I should
also point out that the Specialist Adviser to the Committee also
happens to be a non-industry independent board director of the
Internet Watch Foundation. This is something that the industry
passionately believes in, and we have taken responsibility for
implementing statutes, and the obligations to remove content in
some cases, or going beyond our obligations to make sure our customers
cannot access the content. All of this exists outside the current
Directive we are talking about. There is nothing in the current
Directive that in Orange's opinion will add anything to enforcement
or to locking content where that may be appropriate. There are
ongoing discussions between industry, the Home Office and the
DTI on this area, and we in the industry are quite proud of the
approach we have taken to self-regulation of this kind of content.
To deal with the second part of your question, in terms of censorship,
there is a very blurred line between content which everyone agrees
should be removed—and I think we can all think of those
types of content—things that are on the borderline and things
which are within the realms of legitimate freedom of speech. This
is not just a problem in the Directive; it is a problem which
exists in UK law generally, and probably exists in other Member
States as well. At the moment, Internet service providers use
their discretion as to what is appropriate to remove. On any given
week, our department that deals with this, which is called the
Abuse Management Department, receives complaints about content
hosted on our network or activities undertaken by our customers
while they are online. We would receive dozens if not hundreds
of complaints, and in each of those cases it will have to decide
whether it is appropriate to suspend the customer account or remove
the content, or do nothing, or anything in between those. It is
a very difficult decision to make. One thing that has become very
evident over the last five years has been if this were purely
statutory rather than self-regulatory there would be even greater
problems in assessing what is reasonable and what is not. The
reason for that is that at the moment we have discretion as to
whether to remove content or whether to keep it up, whether to
give the perpetrator the right to discuss why they think it is
appropriate, or whether something should be taken down immediately.
We give the complainant the right to discuss why we think the
content should be taken down. If it was a statute—which,
with respect to your Lordships would be set in stone—it
is an act at a particular time, where a particular technology
is envisaged, and where particular products and services are envisaged.
Over time, that legislation becomes outdated until eventually
it needs to be replaced or amended. That is not something we should
be embarrassed about; it is just a fact of life. By having a self-regulatory
regime, one outside the Directive we are talking about or even
outside some of the other UK statutes or regulations, we act extremely
quickly to changes in technology. I think we in the UK Internet
industry should be proud that while we clearly cannot take down
every single abusive item on the Internet, nor in most cases would
we want to intervene to such a level. We are able to react and
meet with our colleagues in the industry, with the UK Government
and with law enforcement and find an appropriate middle way to
dealing with these problems. My real fear is that if this piece
of legislation, or any other legislation, were to interfere in
the current process, which is extremely quick and reactive—for
example, we are in discussions at the moment with the Home Office
surrounding some current legislation around extreme pornography
and the extent to which industry should react to that legislation—in
what circumstances should we take it down and in what circumstances
should we report it to the police? If it wasn't for the fact that
we have very clear self-regulatory rules establishing how we react,
I fear we would be at a standstill.
Q105 Lord Swinfen: Are you, as an
industry, aware automatically of what passes through your systems
or do you have to wait for a member of the public to complain?
Mr Persoff: It depends what type of content.
There are some types of content where we implement a list created
by the Internet Watch Foundation, a list of bad websites containing
child-abuse images. Using various technical methods, the industry
blocks access—industry is either blocking or planning on
blocking in the near future this type of content. There, we do
not need to wait to receive the reports; but, similarly no individual
person, human-being, knows what that content—rather a machine
checks every single request for a website address when it is typed
into a browser—assesses whether that website list is on
this list and then automatically blocks it. That is one extreme.
The other extreme is pretty much all other type of content, and
with that we normally wait for a complaint. Where we hosted that
content, we have obligations under European law to deal with that
content once we are put on notice. If, for example, you are a
complainant, i.e., an Internet service provider, and you send
me a letter or a fax or e-mail or phone call saying, "you
are hosting this piece of content" and it is in breach of
a civil or a criminal sanction, once I am put on notice I have
to remove that content within a reasonable period of time; but
I do not go out there and look for it, rather I react to complaints
coming in.
Q106 Baroness Eccles of Moulton: When
you say, basically, how good you are at handling this in the UK
by all sorts of different means, it just occurred to me that maybe
it would be a case for derogation, because perhaps not all the
Member States have such an efficient way of blocking bad content,
and therefore perhaps it is something that should be in the Directive
but we could opt out.
Mr Persoff: I really do not have knowledge of
how other Member States in the EU deal with this problem. I do
know that one has in the past expressed a concern that delaying
the debate to a derogation stage would be to miss the point, given
some of the very fundamental problems which it and the industry
considers with the Directive, so I must take my lead from Ofcom
on that one.
Q107 Lord Swinfen: You are talking
about control of websites. What about pornographic material, for
instance, that is sent by e-mail? Do you then have to wait until
someone complains to you or is there some method of catching it?
Mr Persoff: We have spam filters which are specifically
meant to deal with unsolicited mail.
Q108 Lord Swinfen: I am not talking
about unsolicited mail; I am talking about e-mail between people
who may well know each other, for instance they are quite happy
to receive pornographic material, but the whole system is not
entirely secure, as you know. Do you have methods of dealing with
this, because it is obviously illegal, or do you have to wait
for somebody to let you know about it?
Mr Persoff: As a general rule, we have to wait
until someone lets us know about it. We do work very closely with
law enforcement so that when law enforcement knows of a particular
case, we are extremely co-operative with them. You will understand
if I do not go into details regarding that. On the technology
point, the industry has identified that e-mail is not the ordinary
method of delivery for such content. Given the amount of files
transferred and the size of those files, it is normally not by
e-mail that such items are swapped. Clearly, the main one is via
websites, which is why this approach is taken. Within the UK the
approach taken by the Internet industry has been very much to
focus on inadvertent access to websites containing child-abuse
images, rather than intentional. It is pretty much impossible
to stop a determined paedophile accessing material if they want
to, and if they are intentionally in breach of the law, then sooner
or later, hopefully, they will be dealt with. The Internet Watch
Foundation list of websites primarily focuses on is inadvertent
access, and the reason for that is that the offence under the
Protection of Children Act includes an offence of making, which,
due to judicial interpretation, includes an image appearing on
your screen. Now, you might well have clicked on a link inadvertently,
or not realising what it was, or thinking it was perfectly legitimate
legal pornography but not child abuse, and then be confronted
with an image that is clearly illegal. Due to UK judicial interpretation
of the Protection of Children Act, that is an offence. We decided
as an industry, in consultation with government and in consultation
with charities that our primary focus was to stop this inadvertent
criminal activity, and that is why this child-abuse blocking system
was introduced. However, it is not easy but it is possible for
a determined paedophile to get round that, and we do not feel
we will ever be able to block all of those images.
Q109 Lord Geddes: In your evidence
you made a point that introducing new regulatory measures to existing
developing Internet and mobile services would place the UK and
the EU at a significant disadvantage to global competitors in
the US and the Far East. Yet there are within the draft directive,
are there not, imposition of quotas for European works and independent
productions? I do not quite see how your evidence—and presumably
you are favouring those—maybe you do not favour those—I
do not quite see how they walk hand in hand.
Mr Jevons: The Directive does provide a framework
of quotas, and the reason that that would effectively disadvantage
service providers based in Europe or the EU is that the consumer
can today access services based outside of the EU that are not
covered by those regulations, and who do not have to potentially
carry the perhaps more extensive content catalogue and the overhead
associated with that so they are able to operate without any quotas
and effectively offer services directly to consumers, whereas
the European service provider will not be able to simply base
their content offering or their service offering on what the consumers
most demand, but will have to comply with quotas for content that
is based in the EU. The other area where a non-linear world places
an unfair advantage to people based outside the EU is if you think
about the implications of those quotas when looking at user-generated
content; so the consumers ultimately determine what they want
to watch, and not only is there no way of determining or balancing
content generated within the EU to content that is effectively
generated elsewhere; it is how you determine exactly where content
has come from, especially if it has come off a mobile device,
which could have been taken overseas and distributed on one mobile
network. To enforce a quota system on just user-generated content
would effectively have the potential of saying, when a European-based
service provider had a top-ten favourite clips—none of the
world's top-ten favourite clips would be up there because they
would all come from outside the EU. It is almost impossible for
a service provider to police and does not seem appropriate to
base a quota where you cannot tell where the content is coming
from.
Q110 Lord Geddes: Would not the European
Works quota make it easier for a new entrant? Would it ease the
market entry?
Mr Persoff: I think one needs to look at where
in the supply chain the IPTV provider or the mobile IPTV provider
says. Clearly, quotas would benefit some elements of the supply
chain, namely the parts of the supply chain responsible for creating
the content in the first place. In terms of the general principle,
that by applying the regulation to non-linear content we will
be at a competitive disadvantage, it is really looking at the
extent to which a customer of ours could access content anywhere
in the world. They have a choice whether to access it via Orange
or via, for example, YouTube—to pick a company at random.
If one of those two companies was subject to quota rules—and
I am assuming the reason quota rules exist is because it would
not otherwise make it economically rational—strong words,
but it would not otherwise be the top priority of a profit-maximising
company to make ensure that a particular amount of content came
from a particular geographic territory. We would be at a disadvantage
in not being able to offer customers—not necessarily being
able to offer them the content that they desire. If we had a specific
content which must be located or originated in Europe, it might
well be right in terms of it may well help the content producers.
It might well be right that on any given day we might fulfil the
quotas naturally anyway because 30 or 40 per cent of the top content
which we provide may well incidentally have been created in the
EU. Another day that might not be the case. Ultimately, the market
will decide whether or not customers want to see different types
of content. It might well be that on a given day our customers
do not want to view anything based in the EU. Given that remember
we are not talking about linear, so we are not replacing linear
broadcasting but we are talking about an adjunct to, we do not
see the appropriateness or proportionality of subjecting EU-based
non-linear IPTV or mobile TV providers to rules which our brethren
on the other side of the ocean are not subject to.
Lord Geddes: I remain unconvinced, but
I think time is against us.
Chairman: To confirm for the record,
this is a part of the draft amendment to the original Directive
that would apply to non-linear services.
Q111 Lord Fearn: Can I ask on the
impact assessment, has the Commission adequately considered the
impact that this proposal is likely to have had on the sector
itself; and if I can go on from that, is it even possible to predict
the likely costs and benefits of this proposal with sufficient
reliability to support the proposed changes in the Directive?
Mr Persoff: Having reviewed various regulatory
impact assessments carried out at the UK level and the Commission
level, it is regrettable that we do not think as wide an impact
assessment has been conducted. Specifically we would have expected
an assessment of both new and existing business models. We do
not believe that specifically in relation to new business models
that that has been sufficiently undertaken. To give you an example,
we currently have a vibrant Internet access content market in
the UK. We have not seen a clear and wide-ranging impact assessment
on the effect on the existing Internet market of these regulations.
Some of the impact assessment has looked at what might happen
going forward to the new services; for example, IPTV—there
has been some element of impact assessment. But in relation to
what is going to happen to the general Internet or Internet service
providers, unfortunately that does not seem to have been done
to the extent we would like. As for your second question it is
incredibly difficult to try and predict. These impact assessments
are always very difficult. However, they do need to be done, and
the reason they need to be done is to give all the parties the
opportunity to flag up issues. I am confident that between now
and the end of the review period that the Internet industry throughout
Europe will take the opportunity to flag up to the Commission
and provide evidence on the specific points going forward.
Q112 Lord Fearn: So would a precautionary
approach to regulation suggest different proposals for change?
Mr Persoff: Yes, but I think you have to ask
yourself: what is the status quo? What is wrong? What needs
to be addressed by regulation? The default position here seems
to have been: "We are going to extend regulation automatically
unless you, the industry, can find some compelling reason not
to extend the existing regulations; it will extend to non-EU services."
The approach the industry would prefer is to look at the actual
problem we are trying to address. Why do we need regulation? In
the absence of regulation, what would happen? It is almost shifting
the burden of proof back to the Commission to show why regulation
is necessary. I submit that in my opinion that burden of proof
has not yet been passed.
Q113 Chairman: This leads us to a
final round of issues to discuss. In a nutshell, in a way, why
is the Commission going down this line at all? You touched on
that. There must be some pressure somewhere within the European
Union to feel that regulation of this kind is the way to go. Let
me make that proposition. It has not come out of thin air. Secondly,
as I understand it, the UK Government was, if not a lone voice,
certainly one amongst a very small number of Member States that
expressed great concern about the tone and content of this draft
Directive, or draft amendment to the Directive, which again appears
to show that there was not a lot of opposition to this in the
early days. What is the mood like elsewhere in the European Union
about this? Where is the pressure coming from for this overarching—some
would say dangerous approach to regulation and the changing and
emerging range of technologies. Where is this coming from?
Mr Persoff: I start by pointing out that the
Information Society Directorate General within the European Commission,
which is responsible for this area, effectively regulates two
sectors: the media sector and the electronic communications sector.
Clearly, in listening to the views of market players and governments
in relation to both of those sectors, it is always difficult for
a regulator to balance the views of different markets. I would
submit Ofcom has done a very good job within the UK of doing that.
Within Europe there has clearly been pressure brought to bear
on the Commission from those who consider, as you stated, that
there is a non-level playing field. They have therefore been successful
in persuading the Commission to accept, as a default position,
that regulation should be extended to everything, unless there
is a justification for removing it, rather than looking at the
logic the other way round. Ultimately, the Commission had to choose
one way or the other. From our perspective it is unfortunate they
have chosen the other way, but clearly it is more than just a
commissioner's view. As you stated, the UK seems to be pretty
much a lone voice. I read that Slovakia might be quite sympathetic.
It is very difficult to speculate why that is the case. In the
UK we were very much helped by the fact that we have a converged
regulator dealing with both media and telecoms, a regulator that
is able to look from an end-to-end basis at the entire market
and try and assess, going forward, what that market is going to
look like, what the competitiveness of that market will look like,
what it will look like for consumers. I can only speculate that
elsewhere in Europe they do not necessarily have such a joined-up,
end-to-end view of what the market might look like. Alternatively
it might well be that with any given market the media industry
is considered the more powerful political force in a country than
the telecoms and/or Internet industry. That is mere speculation
because clearly it is up to each Member State to decide how they
want to position themselves in this debate.
Q114 Chairman: The underlying motivation
is always the secret to be able to counter a proposal that one
feels a worry. Is it possible that in most Member States, if not
all Member States, what one might call the old-established television
businesses feel threatened by the shift in advertising revenues?
That is why I was pushing you on it, but you are reluctant to
admit this change, but it could be fundamental to the issue. Is
it that the old-established companies, most of which in Europe
include the state-owned or public broadcasting television units—hence
very powerful—that they feel threatened by the new technologies,
and that that is why there is support for extending the Directive
to include those, to include the new technologies? Is that a possibility?
You are in the business for understanding things. Dare I say that
in France, France Telecom is not going to be totally unaware of
what the French Government thinks about these things—not
totally? You are French-owned: what is the view in France, the
view of the French Government?
Mr Persoff: As you mentioned, there is speculation
throughout Europe
Q115 Chairman: I do not ask you to
speculate; I ask you to tell me the views in France.
Mr Persoff: My understanding of the views in
France is that the French Government is broadly supportive of
the review of the Directive, as per the Commission's review.
Q116 Chairman: So France Telecom,
through its business in the UK, Orange, finds in France that it
does not have a ready ear to the concerns you have.
Mr Persoff: I think the approach taken by France
Telecom has been a very balanced approach, looking at its position
within all the markets it is in—the UK, France, Poland and
other countries I mentioned. It has published its statement on
this matter. It has an office in Brussels that is co-ordinating
the response. Broadly speaking, France Telecom's position is to
accept that there are both upsides and downsides in the review.
Q117 Chairman: I am bound to say
that that is a very different summary of the position in your
oral evidence today from the position you took in your written
evidence. You have not taken a balanced position, you have taken
a robust position: the Directive is unnecessary in its present
form; it should exclude all non-linear services; indeed it is
totally misguided—and I think you agree with me—fundamentally
flawed. That does not seem to sound like taking a balanced view
of things.
Mr Persoff: We very much support Ofcom and the
UK Government in their approach to this. We think the approach
taken by the UK Government and Ofcom has been greatly appreciated
by the industry within the UK. There are always complex political
issues that need to be borne in mind when any multinational company
takes a position on something at a central level. Clearly, within
the UK we understand the position of our parent company, and we
have inputted into their response, and having reviewed their response
we find some of our main core arguments found their way into the
draft, and we are very happy with that draft.
Chairman: You have been patient, both
in the length of time and the firmness of some of the questions,
and your responses have been extremely helpful to us. On behalf
of the Sub-Committee, I would like to thank you both very, very
warmly for coming, and for the clarity with which you have given
evidence.
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