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SPEECH/01/551

Mr Erkki Liikanen

Member of the European Commission, responsible for Enterprise and the Information Society

"eEurope: Challenges and Opportunities"

European-American Business Council

Washington, 19 November 2001

Ladies and gentlemen,

Andy Grove wrote in his famous book about "inflection points". He said that it is extremely important for any company to assess them right.

Are we today facing inflection points in political and economic life?

I put this question to students last August. Their reply was yes. In their opinion, the biggest change is the so-called anti-globalisation movement. Seattle and the more recent summits in Gothenburg and Genoa - and the riots we witnessed - were in their mind.

Today August seems to be such a long time ago.

The horrific events of September 11 have shocked us all. As the President of the European Commission, Romano Prodi said the following morning: The United States was with us during the dark days of European history. We are now with the American people. The events on 11 September have surely changed the course of history - and the term "inflection point" may be too weak to characterise these events.

I have followed with great interest the visit of President Putin to the United States. A new partnership is being created between Russia and the United States. Prime Minister Tony Blair has proposed a step-change in the relations between NATO and Russia. What has happened already now, is a change in the course of history. Not to mention the emergence of new alliances, which nobody would have imagined just a few months ago.

This can be an enormous opportunity. I think that Andy Grove would characterise this development as an inflection point.

There are also other turning points for Europeans. The critics of the globalisation have often attacked the liberalised financial markets. In six weeks' time Europe will switch to the euro. One can argue that the 12 countries that will change to the euro are together taking back a part of the influence they had separately lost.

You all know how much the introduction of dollar, and the introduction of a common currency, meant for the US economic development. The euro will deepen European integration. E-commerce with a common currency will create a major new opportunity for e-commerce across the borders. The price transparency that the euro will generate coupled with the Internet will surely increase competition and economic dynamics.

I believe that this is a second inflection point.

More than 10 years ago we witnessed the fall of Berlin wall and the dissolution of the Soviet Union. The iron curtain across Europe was torn down.

Next year the EU wants to conclude the enlargement negotiations with candidate countries. The aim is that the countries that are most advanced in the negotiations could join the European Union in 2004. They will be a part of the same legal order and share common institutions. The Cold War ended long ago. But this will be the first real sign of the construction of a new Europe.

I believe that this will be regarded as a third inflection point.

The trade talks in Doha last week led to an agreement to open a new round of WTO negotiations. A lot of concerns were taken into account. The developing countries were at the forefront of the process. The US and the EU showed leadership also by making concessions. This was an important and positive reply to globalisation debate and in the North-South balance.

This might possibly be a fourth inflection point.

And for us Europeans, the Kyoto agreement on climate change means that we try to solve global environment problems in a common framework. This is a major achievement and a strong and convincing response to the challenge of the anti-globalisation movement.

This could be a fifth inflection point.

Now, what about the new economy?

I spoke here last time in March 2000. It was almost exactly the day of the peak of Nasdaq. A few days later the European leaders held a summit in Lisbon. The new economy and the Internet were on the top of the European Union agenda. The European Commission was asked to devise a comprehensive strategy. This was done in the form of the eEurope 2002 Action Plan.

This was the time of the dot-com boom. A time when some were talking, or dreaming, about the end of economic cycles. What nobody knew at the time, was that high-tech stocks had already reached their height. Few imagined that the economic slow-down that followed would be so sharp.

Does this mean that the new economy is history? That we can forget about the Internet? Does this mean that the priorities set at Lisbon - the eEurope strategy - are definitively dead? It is all over?

My reply is no - and here is why:

  • First, the new economy is a new model that concerns the entire economy. A growing number of companies of all sizes and sectors take up the Internet, and so do public administrations. So the hype may be over, but this integration of the old and the new economy goes on.

  • Second, as this integration progresses, so does the shift towards a networked and knowledge-based economy. It means an economy where an ever-increasing number of individuals and businesses get connected. And (as Metcalfe's Law tells us), the value of the network goes up as the square of the number of users.

The continued growth of the Internet in European homes illustrates this situation: the EU average penetration was 36% in June up from 28% last October.

Close to half the EU population has had some experience with the Internet and the percentage of regular users is approaching 40% on average in Europe. Although some Member States have penetration levels above that of the US, compared to the United States, Europe is still somewhat behind.

There is a major role for government in this context. Investors are influenced by stock markets, but public policy must not fluctuate with share prices. Stock markets follow quarterly figures: public policies must always have a long-term vision, clear objectives, and constancy.

This does not only concern the economy: more pressing challenges require vision and courage. Government policy must pave the way. Here are our priorities:

  • First, we should continue to democratise access to new communication services by completing telecoms liberalisation to drive prices further down, both within the EU and outside via the new WTO/GATS negotiations on services,

  • Second, we need to accelerate e-commerce,

  • Third, we need to cater for the need for security and confidence in cyberspace,

  • Fourth, it is important to promote content and applications. This is essential for the development of mobiles and broadband services in the context of convergence.

  • Fifth, we should bridge the digital divide by giving skills to all.

Completing telecoms liberalisation

From the outset, EU telecoms policy had one key objective: to provide high quality services at low prices to European citizens. To achieve this, we have gradually liberalised all segments of the telecoms market. This process culminated in January 1998 with the full liberalisation of services and infrastructures in all Member States.

Thanks to liberalisation, telecoms services became the fastest growing sector of the European economy - the growth in 2001 being 9.5%. Competition keeps intensifying, leading to lower prices, more choice, better quality of service and innovation.

The last bottleneck was removed at the beginning of this year with the unbundling of the local loop - or the last mile, also with line sharing. As you know, this means that new entrants in the telecoms market can use the local network of the incumbent operator under fair conditions, to propose their own services.

This is a vital step for the development of broadband Internet platforms in spite of the difficulties in the implementation. The Internet will not give its full potential until the generalisation of broadband access.

Today, we already see increased competition in flat-rate, high-speed Internet access. But unbundling is not yet a reality in all EU countries. We must speed up things to complete the unbundling process.

The resulting competition with other broadband platforms in Europe, notably with cable TV, will further encourage broadband take-up. By 2005, ADSL and TV cable should together represent 6 out of 10 connections to homes and SMEs. These figures are contained in a recent study commissioned by the European Commission, which demonstrates quite clearly that broadband Internet access is on the rise in Europe.

What Europe needs now is a forward-looking strategy to ensure that broadband Internet comes quickly and to all European citizens. It will be one of our top priorities in 2002.

But much remains to be done to create a level-playing field for all competitors. Indeed, the EU telecoms market remains fragmented along national lines within the EU. This is particularly the case regarding mobiles, as was illustrated by incoherence in the licensing process for third-generation mobile services.

The success of mobile phones in Europe is striking. In less than a decade, mobiles have conquered 70% (in August 2001) of the EU population (compared to 45% in the US), and the penetration rate keeps growing. Mobiles have really become part of our daily life and our culture.

This is a very strong European asset. We will surely build on this technological and industrial success to have a strong position in the next generation of mobile communications.

The transition to third generation wireless, the third-generation mobile system with full multimedia capability, is a major challenge. I personally remain confident that the possibility to connect anyone, anywhere, anytime will be a compelling goal for an inclusive information society.

One must also start looking beyond third generation wireless: first, by ensuring greater coherence in the licensing process in the future; and second, by a high level of research into to the development of future mobile systems.

Another major challenge is to adapt telecoms regulation to the Internet-driven convergence between telecoms, computers and the media. A new regulatory package for electronic communications based on convergence and technological neutrality, should be accepted in the next few weeks by the EU member countries and European Parliament.

In parallel we will aim to continue our progressive approach in the WTO/GATS negotiations for full market opening by all WTO members of their electronic communications services markets and their adoption of the full reference paper on regulatory principles.

Accelerating e-commerce

The EU has undertaken to secure the Internal Market for e-commerce. The aim is not to regulate this new sector for the sake of it, but only to provide users and suppliers with the legal guarantees they need to engage in e-commerce. Above all, this is about securing confidence in e-commerce.

The European e-commerce framework is a light one. Legislation is limited to what is strictly necessary in order to avoid any over-regulation, which would act as a deterrent. It sets rules and principles that are valid throughout the European Union only in essential areas such as personal data, privacy, copyrights, legal responsibility, illegal and harmful content, cyber-crime, and taxation.

This framework is technology-neutral. This is made necessary by the fact that e-commerce and new Internet services are based on technology in constant evolution. Any technological solution embedded in law could make this law obsolete before it comes into force. It must therefore be up to industry to choose and implement the most appropriate technological solutions to uphold the law at a given time.

E-commerce legislation is complemented by self-regulation, which I see as an efficient and flexible alternative to address certain issues: for instance through codes of good conduct or alternative dispute resolution mechanisms. This, of course, implies some real co-operation between government and industry, leading to a kind of co-regulation.

Another problem with e-commerce is that it ignores borders. No individual Government can regulate the Internet in isolation. This also applies to the EU as a whole. At the same time, creating a consistent global framework is a major challenge considering the diversity of political and legal systems, as well as cultures. However, we must agree on minimum rules at international level. To this end, and whenever possible, EU legislation embeds international co-operation mechanisms.

The EU has also adopted specific measures to support the development of e-commerce in the EU:

  • First, the promotion of electronic procurement by EU governments.

  • Second, the setting-up of a "dot-eu" top-level domain name.

  • Third, measures like the "Go digital initiative" are aimed at helping SMEs to exploit the opportunities of e-commerce.

Security and confidence building

Security has got a new dimension since September 11.

But still we must remember that competition and legal guarantees alone will not be enough to ensure widespread Internet and e-commerce take-up in Europe, whether at home or on the move. It must be complemented by a high level of security and privacy on the Internet.

Users need to feel safe. This is not the case right now. A growing number of users experience security and privacy problems. Between October 2000 and last June, "spamming" has almost tripled and virus attacks doubled.

The EU has taken several key measures regarding security and privacy: It has liberalised the trade of encryption technologies between Member States and between the EU and its main trading partners, which allow to secure confidentiality.

It has adopted legislation to ensure the lawfulness and mutual recognition of electronic signatures between EU countries. These are key to securing the integrity and authentication of electronic data.

Legislation has been adopted to protect personal data. It grants individuals the right to access and correct their personal data, and to opt out of their use for direct marketing. For sensitive data, such as race and religion, explicit consent is required.

A proposed piece of legislation aims to secure the confidentiality of electronic communications, and foresees prior consent (or opt-in) to receive unsolicited commercial communications is now in the hands of the legislators.

But naturally this is not all. Networks have become critical for the proper functioning of our societies and economies. Therefore, the Commission has recently published a Communication on network and information security. Our main policy proposals are:

  • to raise awareness: public information and education campaigns should be launched and best practices promoted;

  • to create a European warning and information system to strengthen the activities of Computer Emergency Response Teams in the Member States, or similar entities, and improve the co-ordination amongst them;

  • to examine how to best organise, at European level, pro-active measures to develop forward looking responses to existing and emerging security threats (e. g. an Information Security Observatory);

  • concerning the legal framework, to set up an inventory of national measures taken in accordance with relevant Community law.

Our objective is to table a comprehensive strategy on the security of electronic networks - including for instance tougher and EU-wide criminal sanctions against cyber-criminals.

Promoting content

Assume we have genuine and fair competition, and a high level of security and privacy. This is still not enough to ensure the long-term development of the Internet. You do not sell a service simply because it is cheap and safe. What the consumer is interested in is what is in the box.

The convergence process puts distinct distribution platforms in direct competition with one another. The end-user is not interested in the delivery method. What matters to her or him is what is delivered and not the type of technology that is used.

Internet surfing will compete with TV viewing, active media will compete with passive media, and that, to some extent, they will merge. The elements of interactivity are being integrated in the TV watching experience, and streaming media is developing on the Web.

But some differentiation will remain. If you need to be connected 24 hours a day, a mobile terminal may be the solution. But if you want to watch a movie, the display of your mobile phone or PDA will not do the job. It is the TV set that is then likely to be the preferred option. But if you then want to surf on the archives of the world, you will probably log on to your computer. Hence, while different access platforms are competing with each other, they are at the same time highly complementary.

Attracting people to these different platforms will depend on the services offered. Services are what make the user tick, and the thrill is in the content. If we want an information society for all, content must be rich, diversified, in all languages and it must meet specific cultural demands.

This is key to the rapid development of the mobile Internet, where people will be charged payments for services used. It is also essential for broadband Internet, where people pay extra money to get a faster connection, but what's the point if the content doesn't justify the speed?

Government is a major player in this context. It owns a considerable amount of high quality content linked to Europe's formidable cultural heritage. Digitisation of this public content and access to it, is of course an important task for EU governments.

Government is also a major driver of Internet uptake through the offer of high-quality on-line services. Much progress has already been achieved regarding the use of the Internet by governments. In particular, consultation on regulatory proposals, access to public documents and legislation is improving. This is good for openness and transparency. But it is only a first step.

What is still missing is real interactivity, which is the essence of the Net. Once we have true interactivity, a major reform of public services will become possible. Responsiveness, citizen-friendliness and quality of service will become new standards for public services.

In parallel, Government will become more efficient. Old and expensive service delivery methods will be replaced by more carefully tailored and targeted services, with important cost-savings and increased efficiency.

For all this to come true, it is of course necessary to invest in digital technologies in front offices. But even more important is the reorganising of the administration, the changes in the operation of the back office.

E-government is a huge win-win opportunity. Making sure that public services and citizens will draw its full benefits, is the object of a major conference that will be held in Brussels on 29-30 November. This Conference is aimed at encouraging the development of e-government in Europe by demonstrating the current best practices and practical advantages of interactive applications that actually work in practice. In Europe, the time has come to move on from ideas to practice.

Digital inclusion

So, liberalisation drives prices down, security ensures trust, content trigger the user's interest. What is still missing is that people, all people have the ability to use the Internet, and also the opportunity to do so.

This is not the case right now. Socio-demographic characteristics continue to have considerable impact on Internet take-up by individuals. The main causes of digital exclusion are female gender, old age, a low education level and living in a rural area.

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. We will almost reach the target of having all schools in Europe on-line by the end of the year.

But connecting schools is not enough.

From schools we must move upwards, and ensure the employability of people already on the job market. Many of them need to adapt their skills or acquire new ones. This is exacerbated by the ageing of Europe's workforce and the accelerated outdating of skills due to the fast pace of technology development. But nobody is too old to learn and digital technologies can facilitate the learning process. This calls for the promotion of life-long learning for all Europeans, using the Internet. This issue is on the Commission's agenda this week.

We need targeted measures in direction of groups that are, or risk being excluded from the digital age. Social inclusion is a duty of the welfare state, but it is also an economic imperative:

  • First, we have to mend the social gap. There is a risk of perpetuating, and even reinforcing existing social discrepancies. The multiplication of public Internet access points will help achieving access for all.

  • And second, we must help people with special needs to enter the digital age: I am thinking in particular about sick, elderly or disabled people. Modern technology provides them with new opportunities to be better integrated in society. This requires that we invest in developing adequate technologies.

Conclusion

In conclusion, the information society is and will remain a top priority for the EU. The spread of the Internet across Europe is in everybody's interest. It can foster economic growth, provide jobs, connect remote places to urban centres, and increase the standard of living. This has not changed.

The hype has gone. But we have seen only the beginning of the information society. This is certainly one of the biggest changes of our lifetime. If you so wish: the real inflection point.

Thank you for your attention.


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