The Internet and the Constitutional Restrictions on Foreign Ownership in Brazilian Media

Transcription

1 The Internet and the Constitutional Restrictions on Foreign Ownership in Brazilian Media Luiz Costa * Summary Introduction...1 First Part Remarks on the Regulatory Framework...2 I. Broadcasting...3 II. Telecommunications...5 III. The Internet...7 Second Part Arguments on the Restrictions on Foreign Ownership and the Internet...9 I. The strict interpretation of the Constitution...10 II. The Journalism discipline...11 III. The Nature of the Internet...12 IV. The Protection of the Cultural Diversity...13 Conclusions...14 References...15 Introduction The purpose of this paper is to analyze the application of Constitutional restrictions on foreign ownership in Brazil Media; our hypothesis is that these restrictions are not applicable to the production of content on the Internet. Article 222 of the Brazilian Constitution provides some restrictions on the foreign ownership of news media and broadcasting companies. We can mention that only native Brazilians or those naturalized for more than ten years, or corporations organized under the laws of Brazil and with headquarters in Brazil may own such kind of company. Also, this article provides that at least seventy percent of the voting share of the total capital of these companies shall be owned, directly or indirectly, by native Brazilians or those naturalized for more than ten years and that these persons shall run the companies and define the content to be produced. This paper will be presented in two parts. In the first part, we will present some remarks on the regulatory framework of the Social Communication, Telecommunications and the Internet in Brazil. In the second part, we will analyze the Arguments on the restrictions on foreign ownership and the Internet. * Master in Law and Information Technology. Paris 1 - Pantheon Sorbonne. I thank Ana Paula Bialer Ingham for advising me on the research for this paper and Cecília Bartholomeu for kindly reviewing it.. Page 1

2 First Part Remarks on the Regulatory Framework We will approach in this first part the Brazilian regulatory framework on broadcasting (item I), telecommunications (item II) and the Internet (item III). The regime of social communication in Brazil has significantly changed with the Constitution of 1988 : throughout time the definition of communication in Brazilian history has undergone substantial changes. Except for the Federal Constitution enacted in 1946, the many Constitutions enacted until 1967 considered broadcasting and telecommunications under the same regulatory framework. Only after 1988 there is a clear distinction between telecommunications and broadcasting services 1. The Brazilian Constitution 2 establishes principles concerning the Social Communication, for which the text does not provide a concept. Despite of that, we emphasize the following Constitutional provisions on the subject : the manifestation of thought, the creation, the expression and the information, in any form, process or medium shall not be subject to any restriction, with due regard to the provisions of this Constitution. Also, no law shall contain any provision which may represent a hindrance to full freedom of press in any medium of social communication 3. The text establishes that any and all censorship of political, ideological and artistic nature is forbidden 4 and sets that federal laws shall regulate public entertainment and shows, it being incumbent upon the Government to inform on their nature, the age brackets they are not recommended for and places and times unsuitable for their exhibition and establish legal means which afford persons and families the possibility of defending themselves against radio and television programs and schedules which go contrary to the provisions of article 221, as well as against publicity of products, practices and services which may be harmful to health or to the environment 5. It establishes in addition that commercial advertising of tobacco, alcoholic beverages, pesticides, medicines and therapies shall be subject to legal restrictions ( ) and shall contain, whenever necessary, a warning concerning the damages which may be caused by their use 6. According to the Constitution social communication media may not, directly or indirectly, be subject to monopoly or oligopoly 7 and t he publication of a printed social communication medium shall not depend on license from authorities 8. 1 INGHAM, Ana Paula Bialer. Regulation of audiovisual media in a convergent environment : the case of audiovisual content via the Internet. Belo Horizonte : Fórum, 2007, p An english version of the Brazilian Constitution is available at: Deputy Chamber (2010). 3 Paragraph 1. 4 Paragraph 2. 5 Paragraph 3. 6 Paragraph 4. 7 Paragraph 5. 8 Paragraph 6.

3 I. Broadcasting There's no legal definition of broadcasting in the Constitution or in the Brazilian regulatory framework either. According to article 221 of the Constitution, the production and programming of radio and television stations shall comply with preference to educational, artistic, cultural and informative purposes, promotion of national and regional culture and fostering of independent productions aimed at their diffusion, regional differentiation of cultural, artistic and press production, according to percentages established in law and respect for the ethical and social values of the person and the family. Foreign ownership restrictions are found in article 222: newspaper companies, sound broadcasting companies, or sound and image broadcasting companies, shall be owned exclusively by native Brazilians or those naturalized for more than ten years, or by legal entities incorporated under Brazilian laws and headquartered in Brazil, at least seventy per cent of the total capital stock and of the voting capital of newspaper companies, sound broadcasting companies, or sound and image broadcasting companies, shall be owned directly or indirectly by native Brazilians or those naturalized for more than ten years, who shall mandatorily exercise the management of activities and shall define the content of programming, editorial responsibility and the activities regarding selection and management of the programming to be disseminated shall be carried out exclusively by native Brazilians or those naturalized for more than ten years, in any social communication medium, electronic social communication media, regardless of the technology used to deliver the service, shall comply with the principles stipulated in article 221, as provided by specific legislation, which shall also ensure priority to Brazilian professionals in the production of Brazilian programs, specific legislation shall regulate the participation of foreign capital in the companies and any modification in the corporate control of the companies must be informed to the Congress. The Constitution also sets up the principles of the licensing regime for broadcasting in the country. According to the article 223, the State has the authority to grant and renew concession, permission and authorization for radio broadcasting and sound and image broadcasting services with due regard to the principle of the complementary roles of private, public and state systems. T he non-renewal of the concession or permission shall depend on approval by at least two-fifths of the National Congress, in nominal voting and the granting or renewal shall only produce legal effects after approval by the National Congress. The cancellation of a concession or permission prior to its expiration date depends on a court decision and the term for a concession or permission is ten years for radio stations and fifteen years for television channels.

4 Broadcasting has an important cultural role in the country. In a society where the levels of literacy are rather low, the access to a means of dissemination of information such as radio and television is an indispensable tool as a means of construction of cultural values and social/political mind shaping mechanisms. Soap operas often deliver important social messages such as propaganda against drugs and drinking, discussion regarding racism and abortion and so on 9. In this context, we underline that there is an accentuated concentration on the market share of television in Brazil: the country has 34 groups and the five biggest ones control 62% of the vehicles 10. Also, the last census point that 87,2% of the population had a television at home in This penetration rate is much bigger than the computer and Internet one's; according to the Internet Steering Committee in Brazil, the penetration rate of computers and Internet access at home were 36% and 27% in INGHAM, op. cit. p donosdamidia.com.br/redes/tv. 11 Available at: 12 TIC DOMICÍLIOS e USUÁRIOS - Pesquisa sobre o Uso das Tecnologias da Informação e da Comunicação no Brasil, available at

5 II. Telecommunications According to the General Telecommunications Law telecommunication service is a set of activities that allows for the offer of telecommunications and telecommunication is the transmission, emission or reception, by wire, radio, optical means or any other electromagnetic process, of symbols, characters, signals, writing, images, sounds or any kind of information 13. The restrictions provided by the article 222 of the Constitution do not concern telecommunication companies. The restrictions on the free enterprise principle concerning foreigners are usually established with regards to specific activities such as the prospecting and mining of mineral resources and the utilization of its potentials (article 176, paragraph 1), the regulation of air, water and ground transportation, and it shall, in respect to the regulation of international transportation (article 178), the regulation and limits to the acquisition or lease of rural property (article 190), the participation on the national financial system (article 192), the participation on the health assistance in the country (article 199, paragraph 3). Article 172 is applicable with regards to telecommunication companies. It provides that the law shall regulate, based on national interests, the foreign capital investments, shall encourage reinvestment and shall regulate the remittance of profits. The figure below shows who are the owners of the biggest telecommunications groups in the country. We note that Telecom Italia controls TIM Brasil (100%); Telefónica de España controls Telefônica Brasil (85%), has a 49% share of TVA and 30% of Vivo (a Brazilian company). Portugal Telecom has a 30% share of Vivo. The Brazilian group Oi has a 48% share of Brasil Telecom. The Spanish Grupo América Móvil has a 21,2% share of Net, 75,22% of Embratel and 100% of Claro, all Brazilian companies. Finally the French Vivendi controls the Brazilian GVT with a 99% share. 13 Law 9472, July 16 th, 1997, article 60.

6 Figure Source:

7 III. The Internet Brazil does not have a comprehensive legislation on information technology law or the Internet. Despite of that, Brazil currently discusses the Marco Civil da Internet, which is a Bill whose objective is to regulate the Internet in the country. We underline the article 2 of this Bill, which states that the regulation of Internet in Brazil shall be grounded on the recognition of the international nature of the Internet; the rights of citizenship into the digital environment; the human rights; the values of plurality, diversity, openness, and collaboration; the freedom of entrepreneurship and the freedom of competition, considering the following principles: I - the guaranteed freedom of speech, communication and expression of thought; II - protection of privacy; III - protection of personal data in accordance to the law; IV - preservation and guarantee of net neutrality; V - preservation of stability, security and functionality of the network, ensuring means of technical measures compatible with international standards and incentives to best practices; VI - preservation of the participatory nature of the Internet. The Internet creates new services in a way quite different from broadcasting and telecommunications. In fact, it has been essentially user-driven, with user-owned equipment (the routers performing central rather than peripheral network functions) and users themselves continuing to generate a substantial part of the content. The decentralized nature of Internet is seen by many as the single main reason for its success, and as a lesson for the converging environment. A characteristic of the Internet which is indicative of convergence is that it functions simultaneously as a medium for publishing and communication. Unlike traditional media, the Internet simultaneously supports a variety of communication modes, both transactional and broadcast in nature: one-to-one, one-to-many, many-to-many. An Internet user may speak or listen interchangeably, interweaving public communication (the content of which is - at least in the case of broadcast content - traditionally regulated) with private communication (traditionally unregulated). This constant shift from publishing to private communication modes, each regulated through very different principles, constitutes one of the main challenges of Internet regulation 15. Thus, the Internet has a crucial role on the convergence which, according to the Organization for Economic Co-operation and Development (OECD), refers to the process by which communications networks and services, which were previously considered separate, are being transformed such that: different network platforms carry a similar range of voice, audiovisual and data transmission services; different consumer appliances receive a similar range of services; and new services are being created 16. The convergence challenges some traditional frameworks like those regarding broadcasting and media, as Kalimo an Pauwels observe with regard to the European context: By blurring the traditional boundaries between, eg., media, broadcasting, telecommunications and information technologies, convergence challenges the traditional policy frameworks of the EU. Previously distinct policies also come together, yet the objectives of such policies may be quite diverged. 15 Green Paper on the Convergence of the Telecommunications, Media and Information Technology Sectors, and the Implications for Regulation, available at: ec.europa.eu/avpolicy/docs/library/legal/com/greenp_97_623_en.pdf. As we will see later the specificity of the Internet was the main argument the Federal Prosecution Service used do deny the demand posed by the Brazilian Association of Broadcasters and the National Newspaper Association against Terra Networks Brasil. 16 OECD Working Party on Telecommunication and Information Services Policies. The Implications of Convergence for Regulation of Electronic Communications, available at :

8 Conflicts may come to the fore, as the policy makers strive to harmoniously combine economic profitability, legal stability and predictability, basic human rights and social-cultural values 17. These challenges are specially defying in a country that does not have legal definitions on social communication, broadcasting and the Internet, as we saw. 17 KALIMO, Harri and PAUWELS, Caroline. The Converging Media and Communications Environment in Rethinking European Media and Communications Policy, VUBPRESS, 2009.

9 Second Part Arguments on the Restrictions on Foreign Ownership and the Internet In the second part we will deal with the Brazilian debate on the restrictions on foreign ownership of Internet specially with regards to the following arguments: the strict interpretation of the Constitution (item I), the nature of the Internet (item II), the protection of the cultural diversity (item III) and the journalism discipline (item IV). Brazil had a recent discussion on the application of the above-mentioned article 222. The Brazilian Association of Broadcasters and the National Newspaper Association petitioned to the Attorney General of Brazil to bring a lawsuit against Terra Networks Brasil, a Brazilian Internet Service Provider controlled by Spanish Telefónica. The petitioners assert that Terra is a news media company and the constitutional rules regarding foreign participation shall be enforced 18 ; the company activities in Brazil would be illegal considering that its controller is Spanish. Furthermore, the Deputy Chamber held a public hearing on the subject and intends to discuss it in Notwithstanding, the subject has been discussed in Brazil since 2004 at least. The discussion is not new and it was already object of specific legislative proposals, as the Proposal of Constitutional Modification 55 of 2004, by Senator Maguito Vilela ( PEC 55/04 ) and the Bill of Law nº 4,209/2004, by Senator Piauhylino Luiz ( PL 4209/04 ), which were declined for regimental reasons. The subject reappears frequently and gained force with the proposition of Bill of Law 29 of 2007 ( PL 29 ) by Senator Pablo Bornhausen, recently discussed in a Public Hearing on November 11 th O Estado de São Paulo (May 13, 2010), available at: (in Portuguese). See also 19 The Parliamentary IT Comittee, available at (in Portuguese). 20 Levantamento Global sobre Restrição a Participação do Capital Estrangeiro na Internet, 30 de março de Lefosse Advogados em cooperação com Linklaters.

10 I. The strict interpretation of the Constitution From a legal standpoint, article 222 of the Constitution imposes restrictions to the free enterprise principle and because of that it shall be interpreted in a restricted way. As Helena Xavier observes, the situations where the Constitution differentiates nationals and foreigners are restricted. They are the only situations where the differentiation between a national and a foreigner is legitimate for what it's possible to say that it is a numeros clausus list. Secondly, the exam of the numerus clausus list reveals that there's no other situation legitimating the differentiation between nationals and foreigners; consequently, laws that create discrimination beyond the situations listed in the Constitution are not applicable. At last, the establishment of discrimination clauses is exceptional which hinder the extensive and analogical applications of these clauses. In fact, the intervention of the rules on foreign capital has that to be interpreted according to two barriers, of diametrical opposing character. On the one hand, there is a barrier raised to the legislator for the guarantee of Brazilians and foreigners of the inviolability of the equality and of the right of free enterprise and free competition (articles 5 and 170 of the Constitution); on the other hand, the opposed barrier to the foreign investors by the constitutional rules that, in numerus clausus, forbid or limit the access to them the specific sectors of economic activity ( ). The sense of article 172 is, therefore, to tie the legislator with the establishment of a statute of the foreign investment that stimulates and, consequently, guarantees the reinvestments and assures the remittance of profits. It does not constitute an exception to the right of free enterprise, but an explanation with regards to foreigners (...). For this reason, as well as the exception cannot empty the content of the rule, also the law cannot restrict the constitutional rules 21. The Internet is not mentioned on article 222. Consequently, the restrictions on foreign ownership should not be applied with regards the Internet; otherwise it would impose a restriction that was not previewed by the Constitution. 21 XAVIER, Helena de Araújo Lopes. Caducidade ipso jure por efeito da entrada em vigor da Emenda Constitucional n o 6/95, das restrições ao capital estrangeiro constantes do inciso II do art. 7 da Lei de Televisão a Cabo. Revista de Direito de Informática e Telecomunicações RDIT. v.1 n. 1, jul./dez Belo Horizonte: Fórum, 2006, pp

11 II. The Journalism discipline The journalism discipline is invoked to justify the application of article 222 on the content production on the Internet 22. According to this argument, the Constitution established a special regime concerning journalism. This regime aims to protect the national culture, identity and sovereignty and also to guarantee the legal liability in the country. However, the constitutional regime imposes the same restrictions on foreign ownership on broadcasting and journalism, as we saw before. There is not any special provision with regards to journalism. Furthermore, the Supreme Court has recently revoked the ancient Press Law for what it does not exist any specific law on the press activities. Carlos Ayres Britto, Minister of the Supreme Court of Brazil, was the reporter of the case in which the Court extincted the ancient Press Law; he affirms on his vote that the Internet is not under the press regime because there is no constitutional norm providing this regime: In a phrase, we are to deal with activities and mediums or companies of social communication that, in its set, constitute the strategical sector of the free press in our country. It's not included in the press concept, however, for absolute lack of constitutional provision, the so-called Word Wide Web of Computers - INTERNET. Device or entreprise of great and seductive informative possibilities and of interpersonal relations, without a doubt, amongst them the interaction in real time of its users ( ). The physically present yield space to the telepresencial (trip that goes from the concrete to the virtual), however, still thus constituent of relations without any constitutional reference. This is justified considering the date of promulgation of the Constitution (October 5 th 1988), when computers not yet operated under the refined and amazing electronic-digital system of intercommunication that is called the net In this sense, see Procedimento Administrativo / , Ministério Público Federal em São Paulo. 23 Report on the Arguição de Descumprimento de Preceito Fundamental n 130, available at: / (free translation).

12 III. The Nature of the Internet As we saw above, the Internet works in a quite different way from broadcasting and telecommunications. The Internet peculiarities are strictly related to the convergence: (i) the Internet is a radically cheaper way of transporting information/bits and therefore is a strong competitor to other forms of information transportation/dissemination; as such the Internet can play an important role as a tool to achieve a number of traditional objectives of communication regulation ( ) (ii) the Internet is a new infrastructure/distribution platform, providing channels for the flows of information between producers, suppliers and users, and (iii) the Internet is a key driver of convergence between networks, industries/markets, products/services, firms and technologies From this scenario, it's argued that Internet is a vehicle as is television or radio and for that it should be subject to the broadcasting regime 24. A different point of view proposes, however, that the Internet should not be under this regime because its nature is broadly different from broadcasting. On the administrative case mentioned above (Brazilian Association of Broadcasters and the National Newspaper Association vs. Terra Networks Brasil), the suit was denied by the Federal Prosecution Service, which based its decision on the following terms: it's impossible, with this diversity of context, to include the Internet in the constitutional statute of the social communication. There is an enterprise law of the social communication but it does not include the Internet. There are no conditions of access to the activity of communication in the Internet, which is oriented by the values of freedom, participation, contribution, modification of the contents, interconnection, transnacional character, amongst other specific characteristics. To speak on the Internet, there is no qualification criteria In this sense, see Procedimento Administrativo / , Ministério Público Federal em São Paulo (free translation). 25 Decision on the Procedimento Administrativo / , available at: (free translation).

13 IV. The Protection of the Cultural Diversity The discussion also includes the argument on the promotion of cultural diversity. Some countries protect the national content trough a politique of quotas. As the OECD observes, the rationale for such policies relates to the cultural objectives of fostering national identity and cultural diversity by ensuring that television services provide programmes which reflect a country s own voice in terms of the type of stories, the language and the perspectives 26. In Europe, for example, the Audiovisual Media Services Directive (AVMSD) establishes that Member States shall ensure, where practicable and by appropriate means, that broadcasters reserve at least 10% of their transmission time, excluding the time allotted to news, sports events, games, advertising, teletext services and teleshopping, or alternately, at the discretion of the Member State, at least 10% of their programming budget, for European works created by producers who are independent of broadcasters 27. In Brazil, however, the discussion is not focused on the content but rather on the producer: imposing restrictions to foreign ownership on the Internet would be a means to protect Brazilian culture. In this context, Bill of Law 70/2007 establishes that the production, the programming and the exhibiton of national content shall be done by native Brazilians or those naturalized for more than ten years or by companies with at least seventy per cent of the total capital stock and of the voting capital owned directly or indirectly by native Brazilians or those naturalized for more than ten years. The Bill also defines national content in a a very broad manner. The argument is not free from criticism. Imposing restrictions on the ownership do not necessarily imply the preservation of a culture. In the Australian context, for example the primary argument for retaining media-specific foreign ownership restrictions is that television and newspapers remain critical sources of news and information, and as such their ownership should be restricted to Australians, who are more likely to act in a manner consistent with the national interest, and to provide content of relevance to Australians. This argument was disputed by the PC in its Broadcasting Inquiry, which found that media proprietors are bound by commercial imperative, local content regulation and competition from alternative services to show programming of relevance to audiences. The PC also discussed the possibility that foreign owners may also be less likely to seek to interfere in domestic affairs or to have conflicts of interest in the local market, aiding the BSA s objective of encouraging diversity of opinion. In any event, legitimate concerns about foreign control of Australian media on national security grounds can still be addressed through FATA and general foreign investment policy OECD Working Party on Telecommunication and Information Services Policies. The Implications of Convergence for Regulation of Electronic Communications, available at: 27 Directive 2010/13/EU of the European Parliament and of the Council of March 10th 2010, article Broadcasting Services Amendment (Media Ownership) Bill 2006, Explanatory Memorandum. The Parliament of the Commonwealth of Australia, available at:

14 Conclusions The discussion on the applicability of restrictions on foreign ownership on the Internet in Brazil exposes how the convergence debate is done in the country. This discussion demonstrates the need of a clearer framework on Broadcasting, Telecommunications and the Internet. Brazil has a lack of basic legal definitions and the absence of basic concepts creates uncertainty regarding the legal framework of these activities. Also, the difference between the Broadcasting and the Telecommunications regimes with regards to foreign ownership is one of the origins of the present discussion. As in other countries, the convergence poses challenges to the development of the Information Society. These challenges are related to the improvement of new services and the competition for example. In this context, companies under quite different legal regimes will soon compete for the same markets. In this context, imposing the restrictions of foreign ownership on the Internet is not the best option. From the legal point of view, these restrictions are not applicable to the Internet as we saw. From the point of view of the development, imposing these restrictions would imply the creation of barriers to free enterprise without knowing which would be the benefits. Finally, internal and external pressure are essential to the improvement of the Brazilian debate on the subject. This debate should take notice of the reciprocal influences between Broadcasting, Telecommunications and the Internet and it should also position Brazil in the convergence scenario as a democratic country.

15 References Broadcasting Services Amendment (Media Ownership) Bill 2006, Explanatory Memorandum. The Parliament of the Commonwealth of Australia, available at: Decision on the Procedimento Administrativo / , available at: INGHAM, Ana Paula Bialer. Regulation of audiovisual media in a convergent environment: the case of audiovisual content via the Internet. Belo Horizonte: Fórum, Green Paper on the Convergence of the Telecommunications, Media and Information Technology Sectors, and the Implications for Regulation, available at: ec.europa.eu/avpolicy/docs/library/legal/com/greenp_97_623_en.pdf. KALIMO, Harri and PAUWELS, Caroline. The Converging Media and Communications Environment in Rethinking European Media and Communications Policy, VUBPRESS, Levantamento Global sobre Restrição a Participação do Capital Estrangeiro na Internet, 30 de março de Lefosse Advogados em cooperação com Linklaters. OECD Working Party Digital Report Digital Broadband Content: Mobile Content New Content for New Platforms 3 May OECD Working Party on Telecommunication and Information Services Policies. The Implications of Convergence for Regulation of Electronic Communications, available at: Procedimento Administrativo / , Ministério Público Federal em São Paulo. Report on the Arguição de Descumprimento de Preceito Fundamental 130, available at: TIC DOMICÍLIOS e USUÁRIOS - Pesquisa sobre o Uso das Tecnologias da Informação e da Comunicação no Brasil, available at XAVIER, Helena de Araújo Lopes. Caducidade ipso jure por efeito da entrada em vigor da Emenda Constitucional n 6/95, das restrições ao capital estrangeiro constantes do inciso II do art. 7 da Lei de Televisão a Cabo. Revista de Direito de Informática e Telecomunicações RDIT. v.1 n. 1, jul./dez Belo Horizonte: Fórum, 2006.