40% of Europeans do not use the internet and are not benefiting from the socio-economic opportunities offered by the internet revolution. This we must correct and do so soon said Commissioner Reading in a recent speech.
I am delighted to be here with you this morning to welcome the 2008 report of the European Information Technology Observatory. This event has become an important rendez-vous for the Information and Communications Technologies (ICT) community, and that is why I am very pleased to assist the re-launch of the Observatory here today.
Over the years, EITO has become a principal source of statistics on the ICT sector. The high quality information it provides is essential to track the latest changes in our dynamic sector in a timely and accurate manner. This is important work because the performance of the ICT sector is of general concern: ICT is the motor of the advanced economy representing 6% of total GDP but as much as 20% of overall productivity growth.
Software strategy
For the headlines, EITO estimates ICT sector growth to be around 3%, still one of the fastest expanding sectors of the economy. ICT goods meanwhile account for 10% of external trade, driven by telecom equipment and electronic components, and 14% of imports, mainly computers. Clearly ICT retains its importance in general economic growth.
But, when we look into the EITO data in more detail we see some interesting changes. For example, telecommunications remains a traditional strength of the European Union but software and IT services are now the clear drivers of growth. With 5% annual growth rates, which are expected to be sustained in the future, software and IT services now represent one third of the overall ICT market.
The rise of software services signals, I believe, a fundamental shift in the sector. As business models adapt to the on-line economy of the Internet, service-oriented and open source software are becoming promising areas for software services for businesses as well as consumers. These dynamics are very clear in the US market, I would not like to see Europe being left behind, which is why I have placed a strong emphasis on the development of open web-based tools in the FP7 research priorities for software; why we have been pleased to see the efforts of industrial platforms such as the NESSI ETP in this regard; and why I have called upon industry to come together to develop a software strategy for Europe.
Software services can generate growth and jobs wherever there is a supply of smart, skilled and motivated people. The web is everywhere which means the opportunities are everywhere we can nurture these people.
Mobile data
The introduction of international benchmarks in this year's EITO edition is particularly welcome. For example, although size of the European ICT sector is similar to that of the USA, telecommunications services remain much stronger in Europe. However, growth has been faster in the US, particularly in mobile services. This growth, it appears from the EITO results, is driven by mobile data services, growing more than three times faster in the USA than in Europe. Despite our widely applauded leadership in rolling out the 2nd Generation services we seem to be lagging behind on moving to the mobile web. Perhaps this is because operators are not yet ready to put at risk their current business model, based on the operation of fully deployed and in large measure depreciated 2G networks. A fast move to mobile internet, after all, might risk cannibalising these safe returns on already sunk investments.
Let us look for example at the so-called mobile termination rates. These are the rates that your mobile operator charges to connect an incoming call to you. In setting these tariffs operators benefit from a monopoly: they are the only ones that can connect the world to you. Being monopolies, these prices are regulated. But in examining these regulated rates I find differences across Europe to be large - an order of magnitude gap between the cheapest and the most expensive. For example, Cyprus has an average rate of 2 eurocents, Sweden, Finland, Romania, Austria and Slovenia have around 6 or 7 cents, Bulgaria and Estonia have over 16 cents.
The difference between fixed and mobile termination rates is also rather hard to justify. In fact the biggest contributors to mobile revenues are today the fixed line subscribers phoning-in to mobile numbers. This also means that, in some EU countries, all those who call a mobile number thereby subsidize the mobile industry to the detriment of the fixed networks and of next generation networks.
It is hard to argue that these differences are the natural result of differences in operating costs from one part of the EU to another. It should be underlined that these differences have not occurred naturally, as a result of different market developments, but as a result of different regulatory approaches by national regulators. This could lead to serious distortions of competition between telecom operators in Europe's single market, in which especially mobile operators have long since been active in more than one, and partly even in a dozen Member States. In addition, the present system has an inbuilt incentive for higher mobile termination rates in the long-term. Because every national regulator who, following the principle of cost-orientation, would bring down mobile termination rates in its own country would thereby punish their mobile industry, compared to a neighbouring country in which the regulator decided to allow higher rates. That is why I have asked my services to look into this issue and to prepare, in close consultation with the European Regulators Group, a draft for recommendation under Article 19 of the Framework Directive aiming to make sure that consumers and businesses get fair prices for the services they use, right across the EU. Together with Commissioner Kroes, I will soon launch a public consultation on this draft recommendation which the Commission intends to adopt later this year, taking into account the results of the public consultation. Mobile termination rates are a good example of why Europe is beginning to fall behind on the mobile Internet.
Mobile termination rates are a good example of why Europe is beginning to fall behind on the mobile Internet. The Internet, as we all know, is based on flat rate pricing for subscribers and zero charges for termination under the so-called "bill and keep" model. How, I ask, can we move on to the mobile internet as long as mobile termination charges remain in place?
The good news for industry is that the transition to the mobile Internet will raise the value added in the sector. In the EITO results we see that the average revenue per user in the US is much higher than in the EU. Undoubtedly due to the adoption of more value added data services by many new mobile subscribers and by the business sector.
It is sure that there is the same potentially huge demand for the mobile internet in Europe, held back by very high prices, especially when these services are used abroad. Sending text messages or downloading data via a mobile phone while travelling through another EU country should not be substantially more expensive for a consumer than sending text messages or downloading data at home. That is why I have called on industry to act to bring data roaming prices into line with reality, with consumer demand and with the spirit of Europe's borderless single market. The transition to mobile Internet can only happen with open and inexpensive Internet services, lower cost bandwidth. As I have made clear to operators already, I count on them to move forward, but if they fail to make these essential moves, I am not afraid to step in.
The challenges for the coming years
ICTs continue to be the major driver of economic and social change. In the i2010 MidTerm Review, adopted in April, we can show significant progress. More than half of EU citizens are regular users of the internet, and nearly 80% of internet connections are broadband. This is a sharp increase over two years. Participation in social networks and use of advanced applications at work, not to mention triple and quad play, have risen considerably over the past year. Governments are acting as well, 60% of public services are now fully online
Progress is good, but challenges remain that will keep ICT on the EU policy agenda beyond 2010. Let me look at two.
First, investment in research is falling well short of the Lisbon target. The ICT sector accounts for 26% of overall research expenditure, but only the Scandinavian countries have ICT research intensities that match or surpass the US. That is why pooling research at the EU level to unleash the European innovation potential in ICT is crucial. It is also why I have championed the launch of two major public private partnerships in ICT research, one on embedded systems and one on nano-electronics. These are fundamental enabling technologies for the future of Europe’s industry - not just the ICT sector but the whole of manufacturing including automobiles, aerospace, health systems, energy and environmental technologies.
Today is in fact a remarkable day for European ICT research in two ICT sectors - nanoelectronics and embedded systems - where Europe must reinforce its position as world leader: the ENIAC and ARTEMIS Joint Undertakings are launching today their first Calls for projects in these fields (proposals can be submitted until 3 September 2008 and the best selected projects are expected to start beginning of 2009). Each of the two Calls represents an activity of around € 200 Million. This is the result of a close and unique collaboration between industry and public authorities in Europe: we innovate by setting a pioneering public-private partnership.
Second, I have already mentioned my belief that Europe should position itself more strongly in the lead to develop the Future Internet that will replace gradually our current network and service infrastructures. This is also a major priority of the community research programmes and is supported by policy developments.
While broadband has been developing fast in Europe, with 100 million lines there are more subscribers in Europe than in any other economic region. Several Member States top the world league in broadband takeup, ahead of Korea, Japan or the United States. These are the direct results of the impact of our regulatory framework opening up competition and improving innovation and choices.
But the transition to fast all-fibre networks is already happening elsewhere in the world. Countries like Japan and Korea have taken the lead. It is undoubtedly the case that services such as web-TV; High Definition Television; or fast video downloads call for a much higher speed internet than is possible using the legacy copper loops. Moreover, the growth of user-created content calls for fast symmetrical services. All these developments are crucial for the development of our web-based economy. It is the wave of the future and an area in which Europe cannot afford to lag behind.
That is why I have launched a package of policy measures to aid the transition to a high speed internet economy. First, we are already working on a Recommendation on the regulatory treatment of Next Generation Access Networks, which will be presented after the summer. Second, like EITO, we are increasing our monitoring and analytical efforts to track the different factors shaping broadband uptake and to analyse the reasons for the persistent and in some cases growing gaps between Member States. Differences are visible not only in terms of penetration rates, but also in broadband coverage, speeds, prices and level of usage, as a result of competition, policy and other socio-economic factors. The result will be a Broadband Performance Index, developed in conjunction with Member States. This composite indicator will give a moving snapshot of all the factors that influence progress in the broadband economy: coverage, competition, prices, speeds, as well as of complementary factors like skills and income. We will publish the results of this index in September this year, together with a Communication that analyses the policy challenges and lays down some principles for the future evolution of networks and internet.
Conclusion
Let me close by reminding you that if 51% of Europeans seems like a success, the data also tell us that 40% do not use the internet at all. 2008 is the year of eInclusion and I will continue to pay special attention to the implementation of the initiative, including policies to promote access to all, as well as actions to raise awareness, improve e-accessibility and to use ICTs to tackle the issues confronting us as our society ages.
