European Affairs

Winter 2002

 

Industry and Technology
Electronic Europe Is Doing Fine But Needs New Impetus
By Erkki Liikanen

 

Quite apart from its historic impact on European unification, the introduction of euro bills and coins at the beginning of January will have important economic effects. One of these will be to give an adrenaline shot to business conducted over the Internet, or e-business, as it is often known.

The single currency will at last ensure price transparency throughout the Single Market. What better way is there to take advantage of this new opportunity than to engage in euro-shopping via the Internet? With the euro, e-commerce will be exposed to instant Europe-wide competition, which is good news for both buyers and suppliers.

E-commerce is an important part of the European Union's drive to become the world's most dynamic and competitive knowledge-based economy, the strategic goal set by European leaders at their Lisbon summit meeting in 2000. A key component of the strategy is the eEurope Action Plan, which aims to accelerate progress toward achieving the Lisbon goal and to ensure that our efforts are heading in the right direction.

We have already achieved a great deal:

• We have speeded up the decision making process in key areas such as the regulation of telecommunications and e-commerce, the development of high-speed pan-European research networks, and information and network security.

• We are closely monitoring the progress of member states toward the knowledge-based economy on the basis of benchmark indicators.

• Above all, we have created a powerful dynamic: the Internet is now at the top of the political agenda in all member states.

Of course, conditions have changed since eEurope's inception, almost two years ago, at the time of the dot.com boom, when most people were unaware that high-tech stocks had already reached their peak. Reality caught up with us ruthlessly.

Today, however, the eEurope strategy is more valid than ever, for three main reasons. First, the new economy is here to stay. That is because it is not a business sector but a new economic model, which rests on the spread of digital technologies and the Internet into all human activities.

About 38 percent of European homes were connected to the Internet in November, up 10 percent over the year before. The Internet is now regularly used by more that 40 percent of the population. But while some member states have penetration levels higher than the United States, the EU average is still somewhat lower.

Second, the Internet is being increasingly used by companies of all sizes and in all sectors, by public administrations and by individuals. It continues to grow, regardless of the market's mood.

Third, the main benefits of the digital revolution are still to come. But investment in digital technologies will not suffice.

There must also be organizational changes in all the steps in the administration, from the interaction with citizens and companies on a Web page to the processing inside the administration, and even more importantly, by investment in human capital.

So what are our priorities in Europe today? First, we have to promote broadband Internet access.1 The Internet will not reach its full potential until broadband becomes a mass market. Second, we have to promote content, including new services and applications. This will be key to persuading Internet users to take up broadband and move to the next generation of mobile communications devices. A major role can be played by e-Government here.

Third, we have to cater to the needs of consumers and businesses for security and confidence in cyberspace. And fourth, we have to bridge the digital divide by giving skills to all our citizens.

From the outset, EU telecommunications policy had one key objective: to provide high quality services at low prices to European citizens. To achieve this, we gradually liberalized all segments of the telecommunications market until, in January 1998, services and infrastructures in all member states became fully liberalized.

Thanks to this, telecommunications services grew by 9.5 percent in 2001, the fastest rate of any sector of the European economy. Competition keeps intensifying, leading to lower prices, more choice, a better quality of service and innovation.

Last December, the EU approved a new regulatory framework for electronic communications, which will enter into force in about a year and have the following characteristics:

• It will cut through all the red tape in which national market entry rules are entangled and replace individual licenses by general authorizations to provide services.

• It will apply to all transmission networks in the same way. This technological neutrality meets the requirements of the Internet-driven convergence between telecommunications, information technology and the media.

• It will roll back regulation as competition becomes effective in specific markets, making way for EU competition rules to play a greater role in policing market behavior.

• It will avoid incoherence in the implementation of telecommunications rules by member states, which compartmentalizes markets along national lines. The Commission will be entitled to require national authorities to withdraw proposed measures that could disrupt the functioning of the EU single market.

• It aims to generate competition in market segments that remain dominated by incumbent operators, particularly in the area of local methods of access to the Internet. It addresses this issue by unbundling the local loop.2 This measure was considered so urgent that it was brought into force at the beginning of 2001. The aim was to allow new entrants to use the local network of incumbent operators under fair conditions and to offer their own services - in particular high-speed Internet access based on ADSL technology.3

The adoption of the new framework represented important progress. It meant that member states and the European Parliament delivered on all key elements of the Lisbon agenda dealing with the Information Society by the agreed deadline, which was the end of last year.

The decision was also a major boost for Europe's future economic growth and employment. Less regulation, easier market entry and a level playing field across the European Union are pre-requisites for the development of world-class communications and a knowledge-based European economy. The decision sent a powerful and positive message to the industry and to Europe's telecommunications users.

Given that the telecommunications sector has had a rough ride over the last year - and that European prices for mobile telephone and Internet use are still high and variable - the new framework is clearly a big step in the right direction. Today, we see increased competition in flat rate, high-speed Internet access in Europe.

Between October 2000 and November 2001, the number of Internet homes with broadband access has doubled to about six percent. Particularly striking progress has been made by ADSL, which is rapidly catching up with cable modem, as a direct result of local loop unbundling at EU level from January 1, 2001.

Overall progress, however, remains too slow. This is because full unbundling4 is not yet a reality in most EU countries. In the meantime, many incumbents are expanding their own ADSL services in the absence of effective competition. The European Commission is therefore keeping a close eye on unbundling in order to speed up its completion.

For the time being, competition is mainly among ADSL providers, or between ADSL and cable modem. By 2005, ADSL and cable modem should together represent six out of ten connections to homes and small and medium-sized companies.

As broadband becomes a mass market, ADSL and cable modem offers will improve. They will thus ensure a smooth transition to new and faster technologies, such as fiber optics, wireless and satellite, which require a high level of investment.

In the future, various technologies will probably coexist. Fiber is already being offered in residential areas of cities in Sweden and to a lesser extent in Italy. It is likely that the combined share of ADSL and cable modem of the broadband market will start declining towards the end of the decade.

Europe will not become a fully-fledged knowledge-based economy, and reap its full benefits in terms of competitiveness, growth, jobs and quality of life, until the generalization of broadband. One of our top priorities this year will be an ambitious strategy to bring broadband quickly to all European citizens. The next generation of mobile communications, with full multimedia capability, will also play an important role in broadband development.

The success of mobile telephones in Europe is impressive. Less than a decade since their introduction, mobile telephones are used by 75 percent of the EU population (compared to less than 50 percent in the United States), and the penetration rate keeps growing. Mobile telephones have really become part of European daily life and culture.

It is particularly striking that the use of mobile telephones is high all over the European Union. There is no North-South divide as there is for Internet penetration. As a result, Internet access via mobile networks could rapidly help close the digital gap between member states. Third generation (3G) mobile telephones thus present a major opportunity for developing an inclusive information society.

One major element in the development of broadband is that the Internet puts different methods of distribution in direct competition with one another. This is a direct product of convergence. Today, telecommunications operators are already locked in a direct rivalry with cable operators.

This rivalry goes beyond mere distribution networks. After all, the average end-user is not interested in the delivery method, but in what is delivered. The highest stakes are in the fight for customers, and it is only starting. People can choose, for example, between Internet surfing and watching television, while active and passive media5 also compete with each other.

To some extent, these different options will merge. Soon television sets will allow us to surf the Web or watch a movie delivered over the Web. Ultimately, it will be possible to put any given terminal to any use. But even then, some differentiation will remain.

A large, wide screen installed in the living room will always be better suited for home cinema than for working, studying or surfing the Internet. A mobile terminal may be a universal communication tool, but it will always have limited use for office work or entertainment.

There will, of course, be some competition between terminals and delivery platforms (i.e., the electronic devices that provide content to the end user, such as the fixed or mobile phone, TV, PC, DVD-player, etc.). But more important is their complementary nature, allowing users to be on-line anywhere, anytime, in the most appropriate fashion.

The real challenge will be to attract consumers to these different methods of access, and that will depend on the content they offer. By content, I mean anything that can be carried by the networks: text, video and sound, software and games, e-commerce and any other commercial application, as well as public services such as education and health.

This is where broadband faces a chicken and egg problem. Consumers will not buy speed for the sake of it, even if it is cheap. They are interested in what is in the box. Conversely, operators will not invest in broadband networks if they are uncertain about consumer interest. Developing content for broadband networks is primarily up to the market, but government can make a difference.

Generally speaking, government can and will be a major driver of increased Internet and broadband use through the supply of high-quality on-line services and public information. The case for e-Government is strong.

First, the use of digital technologies offers a real opportunity to increase the efficiency, quality and cost-effectiveness of public services. Second, digital technologies allow for more user-friendly public services, in particular by replacing old and expensive service deliverymethods with more carefully tailored and targeted services.

As a result, e-Government is a huge win-win opportunity. But first it will be necessary to invest in digital technologies to deal directly with the consumer. It will be even more important to reorganize administration through changes in operations behind the scenes and investing in human resources. Here political commitment will be essential.

Internal reorganization often means breaking down barriers between departments and redesigning government processes. This is a necessary but sometimes painful endeavor that can only be sustained by commitment from the top.

An important priority in making e-Government a success is inclusiveness. Governments cannot choose their customers - they have to serve every citizen equally. They will have to pay special attention to avoiding the creation of a digital divide in e-Government.

Finally, e-Government is a powerful way of implementing good governance, meaning public services that respect principles such as openness, participation, accountability, effectiveness and coherence.

So where do we stand today in e-Government in Europe? The Commission recently published a survey of basic on-line public services, which confirmed that putting public services on the Internet is now a priority in all member states. Substantial differences remain, however, between EU countries and between services.

Our research focused on 20 public services, of which 12 are directed at citizens and eight at companies. The question was: Are these public services available on the Internet and how far do they go beyond the passive provision of online information into inter-activity and, where relevant, helping people to make transactions?

The results showed that electronic services for business tend to be more developed than services for citizens. The best scores by far went to income-generating activities of governments, such as income tax, VAT and social contributions. At the other end of the spectrum came the delivery of documents such as driving licenses, passports and building permits.

What is largely missing is real inter-activity, which is the essence of the Internet. Inter-activity is the key to improving the quality of public services and making them more responsive and user-friendly.

Security is another major factor influencing Internet use and the success of e-Government. Many users today do not feel safe, and a growing number are experiencing security and privacy problems. In the last year, spamming (the sending of unsolicited e-mails to many users, particularly for advertising purposes) has tripled and virus attacks have more then doubled, holding back the growth of e-commerce.

The European Union has taken several key steps to ensure a high level of security and privacy on the Internet. It has adopted legislation to protect personal data and to promote the use of encryption and electronic signatures, which are key to securing the confidentiality, integrity and authentication of electronic data.

It has also launched initiatives to combat cyber crime and harmful and illegal content on the Internet, particularly child pornography. Yet more needs to be done. Networks have become critical to the proper functioning of our societies and economies. At the Commission's initiative, member states have agreed to implement the following measures in 2002:

• Launch public information and education campaigns to raise awareness and promote best security practices.

• Review the effectiveness of national arrangements for computer emergency responses, including virus alert systems.

• Reinforce security in e-government and e-procurement, and introduce electronic signatures in on-line public services.

• Exchange information among member states and the Commission.

or its part, the Commission this year will make proposals to reinforce EU cooperation with international organizations and other partners. It will also propose the creation of a cyber-security task force that would help member states to respond to network and information security problems.

A major requirement of government is to ensure social inclusiveness in the digital age. Ultimately, everybody must be given the ability and opportunity to draw the benefits of the knowledge-based society.

It all starts at school. Schools must provide all young Europeans with the essential digital skills they need to live and work in the digital age. Although almost all schools are today connected to the Internet, a lot remains to be done.

More emphasis must be placed on the level and quality of equipment and Internet connections; students must be able to get on-line at all schools and in good conditions; teachers must be trained and curricula adapted; and discrepancies among member states must be reduced.

From schools we must move upward, and ensure the employability of people already on the job market, many of whom need to adapt their skills or acquire new ones. We also need targeted measures to help groups that are, or risk being, excluded from the digital age.

Social inclusion is not only a duty of the welfare state, it is also an economic and business imperative. First, we have to close the social gap. There is a risk of perpetuating, even reinforcing existing social discrepancies. The multiplication of public Internet access points will help to make access available to everyone.

Second, we must help people with special needs, in particular sick, elderly and disabled people. Modern technology provides them with new opportunities to become better integrated into society. This, however, requires that we invest in developing adequate technologies.

The digital divide must also be bridged between member states, and inside each EU country.

Today, the key components of the Lisbon agenda have been adopted. The eEurope approach, holistic and ambitious, has proven its worth. At the same time, the context has changed and new challenges have arisen. Europe cannot afford to rest on its laurels. We must maintain the sense of urgency in Europe.

I therefore expect the EU summit meeting due to be held in Barcelona in March to give fresh impetus to the eEurope Action Plan. That would ensure that the Information Society remains high on the European political agenda.