15 March 2006

The Web
Business Today

Italian blockade may harm SmartCity

Once the data superhighway is impacted by the Italian internet blockage in Milan there is a possibility that it can slow Malta’s vital communication link to the outside world

In a protectionist move, Italy has blocked over 100 Malta-licensed internet gaming sites which they consider to be illegal.
This comes in the wake of Italy's recent budget, which decreed to block all online gaming sites which are not licensed in Italy. The new law stipulates that ISPs in Italy should block these websites. Those ISPs who circumvent the action face stiff daily fines. Under the Italian Finance Act 2006, section 66 which came in to force last month, Italian internet service providers could be fined up to €180,000 each time they allow someone to bet with a 'blacklisted' company. To make the law effective, a number of decrees were passed recently in Rome, effective from 24 February in virtue of which ISPs must block access to around 684 global sites. Section 66 is designed to deny access for gambling services suppliers, who are not in possession of an Italian concession, to the Italian telecommunications and Internet networks.
What will happen in practice is that the Italian Ministry of Economy did notify the national telecommunications and Internet providers with a blacklist of gambling operators who do not hold Italian concessions. This is no big deal as currently, only six gambling Web portals are compliant with Italian laws. The telecommunications and Internet providers will have the duty of denying access to these gambling operators. Section 66 also proposes tax reductions which do not apply to all undertakings and industries but only to the Italian official betting concessionaires. But how is this unilateral move by Italy going to hit us one may ask?
The impact of the Italian decree is far reaching and may also have damaging effect of hindering access to transmission of all encompassing e-gaming business.
Furthermore, this legislation is unfortunately reminiscent of legislation in countries without a history of democracy and freedom of speech. Such regimes have elected to impose undue censorship over the content of the Internet and curtail the freedom of speech and expression.
Once the data superhighway is impacted by the blockage in Milan there is a possibility that it can slow Malta’s vital communication link to the outside world. This will throw a spanner in the works of the Maltese government’s initiative to attract internet cities such as SmartCity and other investors from Dubai.
Cynics are lamenting that since our sole Internet connection is via Milan then no effort should be spared to solve by diplomatic means the current impasse.
Only last year, Betfair, a multi-billion euro exchange was encouraged to select Malta for a gaming licence and invest heavily to be able to exploit the trade benefits of a commercial licence. Last year, as can be expected Betfair‘s opening was acclaimed by a lot of publicity and fanfare by the Maltese Lotteries and Gaming Authority (LGA).
Betfair, among others, will no longer be able to provide its services to Italian citizens. As a consequence of this Italian blockage, Betfair and each and every one of the other 120 licencees must weigh their decision very carefully on how to combat the severity of the embargo. Millions are being lost on cancelled bets.
The LGA is taking a wait and see attitude, insisting there are “a number of unclear factors” which the Italian regulatory body, the AAMS, needs to clarify before it will involve itself in the legal dispute. New restrictions on the national gambling market signify that Italian citizens will no longer have access to the sites stipulated in a list issued by the Amministrazione Autonoma Dei Monopoli Di Stato (AAMS) which includes some major operators licensed in Malta and the UK. Naturally, the drastic economic consequences that arise out of this boycott have led many operators to call an official meeting with Lotteries and Gaming Authority and with the Gaming Board respectively to verify the options available at diplomatic level in attacking this Italian measure. At that meeting ,it was reported in the media that an LGA spokesmen said that it has information that the list of banned websites will be blocked by an access list on ISP routers, although when this was tested last month “...two major ADSL networks in Italy went down”.
Subsequent reports claimed that the blockading of Maltese sites would probably take place in Milan, through which all Malta’s international IP traffic passes. On the other hand other jurisdictions such as UK were pretty horrified. They were surprised at the brisk pace that Italy moved to implement its protectionist stance.
Luckily not everybody has taken lightly this unilateral move and turned the other cheek. A number of major British online betting companies are urging the European Commission to stop the Italian government blocking access to offshore internet gambling businesses. Hot on the heels of this thunder in a clear sky the Remote Gambling Association (RGA), whose members include 888, Betfair and William Hill, have sought legal advice.
Industry experts have commented that the idea behind this law is to safeguard the ongoing gambling monopoly, belonging to the Italian state and a few authorised private partners. After all, with 1.8 million gamblers recorded last year and revenues of more than €1.8 billion, it's clear that the Italian government is unanimously interested in maintaining control over this goose which is laying golden eggs. Does this mean that one EU member can ride rough shod over others ignoring the terms of the Treaty of Rome?
The answer may well be given by the number of legal suits that will shortly follow. Regrettably, the Commission has so far however failed to address the complaints for these breeches of EU law which were filed by a number of well established Community operators active on the Italian market, thus encouraging the Italian Government to maintain its illegal gambling legislation and to seek to adopt new and even more draconian measures. All this seems a bit surreal as the Commission has set a number of initiatives to open up the internal market and has recently promulgated a diluted version of the services directive to open cross-border trade. In this respect, it is worth reminding that the Commissioner in charge of the Internal Market, Charlie McCreevy, said that national governments could not argue for exemptions from European competition for gambling services on social grounds while at the same time promoting their own state monopolies.
One can be reminded that three years ago, a European court ruled in the famous Gambelli case that member states are not allowed to block cross-border gambling services other than on grounds of moral objections.
In brief the case of Gambelli concerned a number of Italian agents acting for Stanley International Betting Limited, the UK betting concern. Criminal sanctions were taken against them, on the grounds that their activities contravened Italian law which forbade concerns that were not licensed in Italy from accepting Italian bets.
The judgment was acclaimed as a landmark for cross-border liberalisation. It pronounced that any national legislation which prohibits the pursuit of the activities of collecting, taking, booking and forwarding offers of bets, in particular bets on sporting events, without a licence or authorisation from the Member State concerned constitutes a restriction on the freedom of establishment and the freedom to provide services provided for in Articles 43 and 49 EC respectively.
Regardless of this degree, Italy’s fortress mentality has in fact breeched a number of other laws and Treaty rules apart from the articles 43 and 49 concerning the freedom of establishment and freedom to provide cross-border services. This is not to mention breeching of the 2002/20/EC directive for the freedom to supply telecommunications services. Other infringements include personal data protection as per Directive 2002/58/EC on Privacy and Electronic Communications and lastly the Article 87.1 on State Aid. Finally we note that directive 98/48/EC imposes upon Member States the obligation to notify to the Commission and to each other, all the draft regulations concerning information society services before adopting them into national law. This is something AMMS did not do. According to the European Court of Justice the breach of such an obligation to notify constitutes a substantial procedural defect which renders the Italian regulation in question unenforceable against third parties.
Considering the barefaced way by which the Italian, the Dutch and French state monopolies have trampled over EU Treaty provisions, it comes as no surprise that the European Commission wasted no time and signalled its intention to reform the EU gambling market.
They appointed an expert firm called the Swiss Institute of Comparative Law, based in Lausanne to conduct a study to "evaluate how the differing laws regulating on-line and off-line gambling services and their impact upon the smooth functioning of the internal market.
Due to the diversity and complexity of the gaming rules of the 25 members the study was delayed but it is now expected to be unveiled at a conference to the stakeholders in May. One hopes that the unveiling of this study will pave the way for a broader consensus among EU members to better regulate cross-border trade particularly that which concerns the e-commerce directive and harnessing the abuse of powers by State monopolies.

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