US embassy cable - 04ROME1935

UNCLAS  ROME 001935 
 
SIPDIS 
 
 
DEPT FOR EB/CIP 
 
 
COMMERCE FOR NTIA-CSPECK 
JUSTICE FOR ANTITRUST-CWILLNER 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, PGOV, IT, EUNJ 
SUBJECT: ITALY ENACTS CONTROVERSIAL MEDIA SECTOR REFORM 
BILL 
 
Ref: A) 03 Rome 5557 B) 03 Rome 5639 
 
1.  Summary.  President Ciampi signed the new text of the 
Berlusconi government's controversial media reform bill - 
known as the Gasparri Law - on May 4, after having rejected 
an earlier version on grounds of unconstitutionality (ref 
b).  Critics argue that the law was designed exclusively to 
allow PM Berlusconi to legitimize his media holdings and to 
expand his empire.  They maintain that the law is 
unconstitutional and say they will appeal to the 
Constitutional Court and, if necessary, to EU authorities. 
The GOI, on the other hand, insists that the law is 
innovative, will promote competition, and will encourage 
the adoption of new technology. 
 
2.  The Gasparri Law is based on the concept that the 
media/communications market is one broad sector.  Under the 
law's provisions, no single operator will be able to 
receive more than 20 percent of overall revenues from the 
entire sector.  In addition, the law establishes a new 
governing and management structure for the national network 
RAI (the state-owned radio and television broadcasting 
conglomerate) along with provisions that would allow for 
RAI's gradual privatization. End Summary. 
 
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A Broad Definition of the Media Sector 
-------------------------------------- 
 
3.  Although the bill was amended from the original version 
(ref A), the Gasparri Law still has the "SIC" (integrated 
system of communications) as one of its key elements.  The 
SIC envisions the communications/media sector as one broad 
sector to include, but not be limited to, television and 
radio broadcasting, the press, and the Internet.  The 
Gasparri law provides that no single operator may generate 
more than 20 percent of overall SIC revenues.  An exception 
remains for former national telecom operator Telecom Italia 
(which owns TV station La 7), which is subject to a tighter 
ten percent cap on SIC returns.  While the law allows 
cross-ownership in television and the press, entities that 
already own more than one national television station are 
not allowed to purchase newspapers prior to the end of 2010 
(a two-year extension from the bill's original provisions). 
 
4.  The SIC is the most controversial aspect of the 
Gasparri law.  Many claim that such a broad definition of 
the media/communications sector was designed exclusively to 
allow PM Berlusconi's media empire to expand further. 
Critics contend that it will be virtually impossible to 
measure and/or monitor the 20 percent cap.  Even those who 
support the law concur that measuring the cap will be 
challenging (Note: the Communication Authority is tasked 
with monitoring overall SIC revenues). In addition, while 
the law does prohibit a company from establishing a 
dominant position in any individual market (for example 
television broadcasting), the definition of "dominance" 
appears to be very elastic and difficult to define. 
 
------------------ 
Analog to Digital 
----------------- 
 
5.  The law's final version preserved the requirement that 
television broadcasting switch from analog transmission to 
digital by the end of 2006.  Digital offers approximately 
five times greater transmission capacity than analog does. 
According to the GOI, in addition to better quality 
transmission, digital will encourage new market entrants, 
and thus make the sector more competitive and pluralistic. 
 
6.  This provision also has met with criticism.  Some 
industry experts have argued that transferring to digital 
will require significant up-front investments and that 
certain technical difficulties (for example, the capacity 
of household antennas to receive digital) have been 
underestimated.  Critics also have contended that digital 
does not inherently increase competition since such 
channels are unlikely to offer significantly different 
content that could challenge the dominance of PM 
Berlusconi's Mediaset channels and the RAI channels. 
 
7.  RAI and Mediaset dominate the television market, each 
 
 
owning three (for a total of six) of the eleven national 
channels.  Italy's Constitutional Court had ruled that 
Mediaset had to give up one station - or otherwise convert 
it to a much less profitable satellite network - and that 
RAI's third channel had to survive without advertisement. 
Some argue that with the conversion to digital, Mediaset 
will not have to give up one channel, nor will RAI 3 have 
to go without advertisement.  (RAI and Mediaset will now 
"only" own six out of expected 30-35 channels following 
"digitalization" and, thus, will no longer be dominant). 
 
-------------------------------- 
Privatization of State-Owned RAI 
-------------------------------- 
 
8.  The Gasparri Law states that, within six months from 
its enactment, the first trance of RAI shares would be 
auctioned.  No single investor will be able to hold more 
than one percent of RAI.  In addition, RAI will not be able 
to spin off company assets prior to January 1, 2006.  RAI 
has also been mandated to use its public financing to 
provide more public service broadcasting.  The completion 
of RAI's privatization is not specified in the law, but 
sector contacts believe this will be a long process, and 
that RAI will remain in public hands for the foreseeable 
future. 
 
9.  Other significant elements contained in the Gasparri 
Law include provisions relating to ownership of local 
television stations, protection of minors, and 
advertisement ceilings. 
 
------------------- 
Market Implications 
------------------- 
 
10.  Government contacts have told us that the Gasparri Law 
is an innovative piece of legislation which promotes new 
media and communication technologies, provides 
opportunities for new entrants in the media sector, thus 
allowing greater pluralism, and is consistent with the 
Government's pro-market approach by envisioning the 
privatization of RAI. 
 
11.  Communications Ministry and regulatory officials have 
acknowledged that the law does affect a sector where PM 
Berlusconi has his most significant business interests. 
Nonetheless, they argued that the media sector was long 
overdue for a modernized legal and regulatory regime.  In 
an oblique reference to the perceived "hand-out" to the 
Prime Minister, Communications Minister Gasparri, in a 
press interview, said that he would have liked to see the 
conflict of interest law approved prior to his 
media/communications reform law. Once the conflict of 
interest law is enacted, this will complete the legal 
framework of the media/communications sector, he stated. 
(Note:  The conflict of interest bill is now with the 
Chamber of Deputies' Culture Commission after having been 
approved by the Senate). 
 
12.  Technical experts at Communications Authority and in 
industry said that the law does in fact promote 
technological changes and provides greater opportunities 
for new entrants.  At the same time, they also underscored 
that existing actors, and PM Berlusconi's Mediaset in 
particular, are bound to make the most of the possibilities 
offered by the law.  They also argued that the law 
"burdens" RAI with public service requirements that will 
make it less competitive with respect to Mediaset. 
Defining and measuring the SIC appeared to be of the 
greatest concern to these experts. 
 
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Comment 
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13.  The Gasparri bill took two years to get through 
Parliament.  Throughout the debate, political 
considerations have largely overshadowed the bill's 
technical merits.  It will take considerable time to assess 
its real impact upon competition and fair play in the 
Italian market.  End Comment. 
 
 
SKODON 
 
 
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	2004ROME01935 - Classification: UNCLASSIFIED