Brazil’s telecom regulator investigates the status of internet (OTT) transmissions (Claro S.A. v Fox)
Published 11 November 2019 By: Ana Carolina Cagnoni
Preliminary suspension of “live” channel transmissions via the Fox+ subscription app has started a fascinating legal debate in Brazil.
On June 13 this year, the Brazilian Telecommunications Agency (ANATEL) ruled that “linear” channel transmissions over the internet should be subjected to the same regulatory framework as Pay TV companies. As a result of the decision, the Fox+ subscription app was temporarily suspended. It is the first decision by ANATEL in a case brought by Claro S.A. (a Pay TV operator) who is challenging the legality of the Fox+ application in its current form of providing linear content directly to consumers.
Legal framework for Pay TV operators in Brazil
Law No. 12485/11 that regulates Pay TV companies in Brazil (SeAC Act) is the basis of Claro’ arguments. Among many restrictions brought by the SeAC Act is the vertical limitation imposed on companies in the market. That is, in Brazil, TV producers, programmers and broadcasters are not allowed to directly distribute content to consumers, while “distributors” (e.g. Telecom companies) are not allowed to produce content for distribution or broadcast it directly. Historically, this was an agreement between telecom companies and TV broadcasters (with significant political power in Brazil) to allow a change to the previous Cable TV law which restricted foreign companies from controlling telecom companies in Brazil. With this agreement, SeAC allows telecom companies to be controlled by foreign companies such as Claro. But they are not allowed to produce content or license certain rights, preserving market for tv broadcasters and other producers.
In addition, the law also restricts corporate cross ownership within these activities, meaning that Telecom companies cannot be affiliated with companies that produce content and producers, programmers and broadcasters that cannot belong to the same corporate group as telecom companies1.
Another relevant restriction that Telecom companies face under SeAC Act is the limitation to license or finance the licensing of sports events of national interest - such as the FIFA World Cup or the Olympic games. In a nutshell, this means that telecom companies cannot bid for such sports transmission rights in Brazil.
ANATEL is the agency responsible for enforcing obligations applicable to telecom companies under the SeAC Act. More broadly, ANATEL is the agency responsible for enforcing the Telecommunications Act and for determining which companies can legally operate in the Pay TV and other markets, which rely on telecommunication infrastructure and radiofrequencies. Consequently, operating as a Pay TV distributor requires previous registration with ANATEL. However, this requirement is not applicable to those who operate internet apps and online services, as the Telecommunications Act do not consider these as “telecom services”.
Claro’s case against Fox
In the case under debate, Claro argues that linear channel transmissions available through the Fox+ app constitute an illegal “distribution activity”, as Fox is not authorized by ANATEL to operate as a telecoms company and, more importantly, as Fox cannot perform telecom activities once it is categorized as a “programmer” under SeAC Act.
Moreover, within the SeAC logic sustained by Claro (which has been endorsed by former presidents of ANATEL and ANCINE2 - the Brazilian Film Agency also responsible for enforcing other provisions in the SeAC Act), the Fox+ app online linear channel distribution shifts the market’s regulatory balance in a way that could be used to circumvent cross-ownership rules. In addition, allowing Fox to distribute content directly to consumers through the Internet would permit Fox to benefit from operating as a “distributor” but not be subject to all the regulation imposed on Pay TV companies, which includes previous registration with ANATEL, compromised with signal quality standards and telecom tax treatment, substantially higher than the one currently followed by Fox.
In response, Fox alleges that the Fox+ app provides paid TV content online and depends on internet connection to be accessed by consumer. Therefore, such service does not constitute a Pay TV distribution service but a “value-added” service (VAS) under the General Telecommunications Law (Law No. 9472/97). To Fox, the difference is that “distribution services” are provided if the linear channel reception by the consumer is under direct responsibility of a single operator. On the contrary, the Fox+ app, like any other over the top (OTT) service, relies on internet service provider’s connection to enable consumer to access the content. Additionally, Fox argues that ANATEL’s decision would violate the Brazilian Internet Legal Framework (Law 12,965/14) that imposes net neutrality in Brazil and prohibits the restriction and discrimination by internet service providers.
ANATEL’s preliminary decision and Fox’s appeal
ANATEL’s preliminary ruling3 recognized that the matter must be further evaluated. From an economic perspective, the Agency said, if other companies adopt this model of business, i.e. distributing linear channels online, the principles and obligations established by the SeAC Act would be depleted and “traditional” Pay TV companies business model would be damaged. From a legal perspective, ANATEL recognized a conflict within the applicable laws as argued by Fox. To allow additional time to investigate this issue, ANATEL made a preliminary ruling requiring Fox to suspend linear channel transmissions until a final decision was reached, and opened Public Hearing No. 22 to allow interested parties to present its views on the matter.
On July 3, however, Fox obtained a judicial preliminary injunction against ANATEL’s decision that allows them to keep the Fox+ app up-and-running until a final decision by ANATEL. The judge declared that although “the context of the matter poses a reasonable doubt”4, ANATEL’s decision was excessively burdensome to Fox, its consumers and third parties, clashing with the principle of minimum intervention that ANATEL should abide to. ANATEL challenged this judicial decision, but the Tribunal upheld the single judge’s verdict on July 30. Therefore, for now, the courts have permitted Fox to continue its linear transmissions through the Fox+ app until ANATEL’s final decision is reached.
Up until now there have been many declarations of support or disagreement with ANATEL’s position and certain legislative movement in questioning if applicable laws are adequate to address online content distribution properly and interface with Pay TV regulations.
The final decision will, therefore, set the tone on how to interpret SeAC Act: if maintained, online linear channel transmissions would not be allowed unless authenticated by a Pay TV company that provides the same linear channel through “traditional means”, meaning that OTT service providers could only provide non-linear video on demand services in Brazil; but, if reversed, linear transmissions online are not regulated by SeAC Act and could be made available by any company, including, ultimately, telecom companies directly (which means that they could also transmit online sports transmissions). In any case, Brazilian regulatory framework on the matter will change substantially.
For now, due to the uncertainty generated by this debate, companies should be mindful of some specifics on the Brazilian market. As general tips, we stress that
companies willing to provide linear content, such as a sports channel, online should be aware that this activity could be questioned by ANATEL;
pure on demand options, where content is available to consumer anytime have no reasons to be questioned;
sports events of Brazilian national interest distributed online by Telecom companies could also be questioned by ANATEL since such companies are not entitled to do so under SeAC Act.
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- Tags: Brazil | Brazilian Telecommunications Agency | Broadcasting | Dispute Resolution | FIFA World Cup | Football | Media Rights | Olympic Games
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