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Convergence.

The second is Convergence, which describes the inexorable process that occurs when computer, telephone and television technology become one, converging like rivers. The European Union and the United Kingdom Parliament are considering the implications of all of this at present. They are preparing parliamentary bills to change the regulatory structures to ensure that Europe and the countries within it do not suffer economically by setting unnecessary obstacles in the path of convergence. A comparison that describes what is occurring is the motorway. By the time we reach the millennium, there will be no difference between the method of carrying television channels, telephone conversations and information on the web. There will be one motorway. On it will be cars, vans, lorries, buses and a few motorcycles. You cannot have a situation where there are different vehicles on the on the same carriageway travelling in opposite directions because different local authorities have different policies; neither is it practical to have a different road for different types of vehicle.

You can set restrictions on the vehicle but not on the road. You can charge a different tax rate for each vehicle, you can have different tolls; but it is one road and everyone must follow the highway code, and above all must travel in the same direction. This convergence will involve basic changes in the way in which we are used to regulating the broadcasting world. The discussion is currently ongoing and it is not a case of "if" but "how" and "when". The only certainty is that the three elements of broadcasting, creating content, distribution and transport will be separated and regulated in different ways within one over-riding principal regulation, exactly the same way as vehicles on the motorway. In addition to the convergence of technology, there is also convergence of the business market which exists by using that technology. Secondary convergence is defined as the coming together of the media, IT and telecommunications sectors to form a new convergent sector. The retail, travel and financial services sectors can also join in to give tertiary convergence. Traditionally, this convergence has been seen as occurring across the vertical markets of the convergent sectors.

Convergence is more usefully examined by use of a new model of sectors divided by operational function, a value chain. Observation of the convergent sectors has revealed that rather than occurring across vertical markets, convergence is non-systematic. It is occurring within specific functional areas of the convergent sectors as well as between these areas. Therefore, the traditional model of convergence which treats industry sectors as single units is not sufficient for a comprehensive analysis. Business and consumer value chains are separated since different issues and levels of convergence affect each of them. In the business value chain the end user is a business, and in the consumer value chain the end user is a consumer. Each of these value chains will be used to analyse particular case studies and industry trends. The consumer interactive services value chain is split by function into three stages: Content environment; Services environment;

Access environment. In the content environment, content is produced in the form of entertainment, such as games, music, film and magazines, and information, such as education and news. Services include customer care systems, online services and Internet access. Access consists of all the functions, which allow the customer to connect to an interactive PC are included in this stage. Split along the same lines as the consumer value chain, the business value chain consists of five environments: Network; Access; Navigation; Content; Value-added services. The network environment defines the infrastructure which links the users to the access environment. It includes such functions as data communication service provision. End-user hardware and software, including browser software, comprise the access environment. Internet navigation and content aggregation are included in the navigation environment, which includes search engines and Webcast news services. Analogous to the content environment of the consumer value chain, the content environment here contains information, communication, entertainment and commerce/transaction. Value-added services include the ancillary roles of Web consulting, systems integration and graphic design.

Convergence has been observed at every stage of the consumer interactive services value chain, but the sectors involved at each stage vary. Convergence in the content environment is focused between the media and IT sectors. Since IT is needed to produce content in a digital form, co-operative convergence between these sectors is inevitable. Other convergence has occurred in the form of moves by online service providers to secure content for their services. For example, Microsoft has formed a joint venture with NBC, MSNBC. Also both AOL and MSN have adopted the cable TV industry's model of "channels" for their online services. The nature of content itself is changing. Repurposed content, such as online newspapers, remains important and interactive content, in which the user can participate content developers such as Headland Digital Media. Within the services environment there is convergence between all three of the convergent sectors. Media companies with technical expertise are co-operating to provide Internet service provision (ISP) or online service provision (OSP) services; an example is AOL Europe.

Tertiary convergence is focused in the services environment. The retail, travel and financial service sectors are converging with the secondary convergent sectors to provide new transactional services. For example, Sainsbury will be providing a grocery shopping service on the British Interactive Broadcasting digital satellite service. Co-operative convergence is found in the access environment, with telecoms and IT companies working together to provide the infrastructure which supports their operations in the service environment. The media and telecoms sectors are also converging, as demonstrated by some digital broadcasting ventures. For instance, British Interactive Broadcasting (BIB) is a joint venture including BT and BskyB. Some companies are extending their operations beyond their traditional areas of expertise and into new stages of the value chain. This constitutes convergence along the value chain. In response to pressures in their traditional markets and in pursuit of new revenues, many telecoms companies have set up ISP ventures. For instance, News International and BT have set up an ISP service, LineOne.

This represents convergence between the access and the services environments. Similarly, some OSPs and television services which operate in the services environment are extending their operations into the content environment in order to procure material. For example, France Télécom has purchased stakes in several cable and television channels in order to procure content for its cable service. Convergence in the business value chain is most notable in the content and value-added services environments. Additionally, convergence is taking place between stages of the values chain. Business can become involved in other stages of the value chain either through strategic alliances or by expanding existing operations, refocusing to concentrate on new sectors. The motivations for moving into other stages of the chain include: Competition in existing markets; Revenue opportunities in new sectors; Technological convergence between sectors. Convergence between sectors will continue to occur since pressures will be sustained in companies' traditional markets. An example is commoditisation in the voice telephony markets. Growth in the new convergent markets will also stimulate convergence. However, all joint ventures and alliances will be subject to regulatory controls. The number of consumers in the interactive services value chain is increasing. Datamonitor forecasts that the number of European online households will increase from 6.7 million in 1997 to 46 million in 2002 and there will be 18 million households in Europe with digital TV compared to 1.2 million in 1997. Interactive content will become more important as consumers demand more from their services, such as interactive gaming and chat communities. As a result, interactive content developers are likely to continue in the content environment as IT, such as Microsoft's commercial Internet system, is used by the interactive content developers. In the services environment, crowding of the ISP market will lead to consolidation of the industry. More joint ventures will stem from this consolidation as companies seek to attain critical mass, and so convergence will continue. Tertiary convergent services such as online shopping, travel booking and financial services are also likely to take an increasingly important role in the services environment.

For example, Datamonitor forecasts suggest that the transactional revenues in Europe from consumer online shopping will reach US$3.2bn by 2001. New Internet access devices are likely to change the access environment of the value chain. Network computers, PC-TVs, set-top boxes, Internet-capable games consoles and Internet-capable smart phones will all provide new methods for Internet access. Despite limitations in their functionality, Datamonitor forecasts that they will all provide access devices in Europe by 2001. The make-up of the consumers themselves is also set to change. Digital television services appeal to the mass market consumer, and the Internet and online services will gain popularity in the mass market. Therefore, light users as opposed to hobbyists, will become an increasing proportion of customers in the value chain. In future, dominant companies in the value chain will consist of both those which are significant now and ones which are recent start-ups. For example, Microsoft can exploit its present power to retain a significant presence in the convergent markets. But new companies such as the providers of search engine services are likely to become important in the future convergent markets. Digital television broadcasters such as Canal Plus in France will also be significant in the future as they establish a large customer base in the mass market. The number of users in the business value chain is set to increase. Datamonitor forecasts that the number of business PCs in Europe will rise from 39 million in 1997 to 58 million in 2001. Over the same period, the proportion connected to LANs will rise from 66-87%, and those on intranets from 20-68%. The content environment has been and will continue to be the focus for intra-segment value chain convergence. As interactive Web content becomes more important, the role played by the traditional media company supplying information content will decrease.

Dynamic Internet content will be provided by new media specialists, while the growing sector of intranet content will be dominated by technology companies. The use of the Internet as a medium for voice and video communication will continue to blur the lines between network infrastructure, access and, increasingly, the content environments. The provision of value-added services requires closer co-operation between companies operating at each stage of the value chain. Internet commerce in particular is likely to drive convergence in the value-added services market. Inter-sector convergence will increase in importance as Internet and intranet service providers seek to have access to the best content, whilst ensuring that their services are easily accessed.
Continuing strategic alliances between companies from the content, navigation and access environments are particularly likely as companies seek to follow the lead of Intel, by promoting applications which will increase demand for their own product or service. Convergence between technologies is also set to continue and indeed increase. Key areas of convergence will be the greying of the distinction between access and network operating systems. The location of AOL or PointCast icons on the desktop will reduce the intellectual gap between access and network environments. Meanwhile, the increasing use of browser software for intranet and desktop navigation in the access environment will lead to further technological convergence. This is exemplified by Microsoft's Active Desktop concept, where the Internet browser is being merged with the graphical user interface in Windows 98. A similar strategy is being followed by Netscape with its Webtop approach. As well as browsers, new client technologies will be integrated in the network and environments, enabling the delivery of push information (PointCast channels) and applications (Java applets).