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SPEECH/01/87

Erkki LIIKANEN

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

"Markets and public policy in the information society"

London School of Economics

London, 26 February 2001

Ladies and gentlemen,

The information society has been on the top of the EU agenda after Lisbon. The conclusion of the summit was clear: Either we step into the information age, together, determinedly, now, or the future of Europe and its Member States will be compromised. And we talk about sustainable growth, competitiveness, jobs, social cohesion, political influence.

Only renewed economic, scientific and intellectual influence will give Europe a strong say in world affairs in the 21st century. And the world is full of urgent issues where a Europe that speaks with a single voice can make a difference: the preservation of the environment, sustainable development, cooperation and development, peace and democracy, food safety, ethical issues, etc. But for that, we need to embrace the Internet and the technologies of today and tomorrow.

Europe has started to build a comprehensive strategy to enter the information society since 1994 onwards. This strategy has been given fresh impetus last year by the special Summit at Lisbon and the launch of the eEurope Action Plan.

The EU information society strategy must be seen as a whole, as there is strong synergy between its various components. For instance, in key areas such as mobile communications, the telecoms policy is closely related to the research policy. They support each other to the extent that neither one nor the other would have been able to produce the world-wide success of GSM - and soon of UMTS.

Telecoms and research in information society technologies form the original and the main pillars of the information society strategy. But the scope of this policy has widened tremendously since 1994. The information society dimension has been integrated in all relevant EU policies: the Internal Market, in particular with e-commerce, regional and social cohesion, employment, etc.

A major development with the eEurope Action Plan, is that Member States have endorsed common goals to be implemented at national level, included in areas where the Community intervention is limited for instance education and training. And what's most, Member States have asked the Commission to benchmark the progress they make on pursuing these common objectives.

I will focus on a few major themes:

  • First, the impact of telecommunications liberalisation.

  • Second, the need for social inclusiveness in the information age.

  • Third, the development of on-line services in areas of public interest.

  • Fourth, the search for the right balance between regulation and self-regulation.

  • Finally, I will assess Europe's position in the information society.

1. THE IMPACT OF TELECOMS LIBERALISATION

The launch of the EU policy telecoms policy dates back to a 1987 Green Paper which exposed three guiding principles. These remain as valid as ever:

  • First, liberalisation of the sectors under monopoly. Starting in 1988, through a step by step approach, the EU liberalised all segments of the telecoms market. This process culminated in 1998 with the liberalisation of voice telephony and infrastructures.

  • Second, harmonisation of the European market. Common rules were needed to create a unified EU-wide telecoms market.

  • Third, application of EU competition rules to liberalised segments of the telecoms market. The aim of the EU competition policy is to prevent collusive agreements or abuses of a dominant position, and to prevent the creation of dominant positions.

What was the impact of this deregulation process? The picture today is that of a very dynamic market:

  • Telecoms remain the fastest growing sector of the economy with an overall growth rate of 10.9% last year.

  • Competition keeps intensifying. There are now 54 licensed mobile operators and hundreds of licensed local, long-distance and international operators.

  • Tariffs continue to fall. Last year, incumbents' tariffs fell by 10.5% for business users and 4.6% for residential users for national calls, and by 15.1% for business users and 13.5% for residential users for international calls. In addition, the tariffs of new entrants are usually lower.

To sump up: the competition has lead to lower prices, more choice and better quality of service.

At the same time, research evidence also underlines that much depends on the way in which liberalisation takes place.

  • First, the existence of an independent regulatory authority. It plays a central role in the positive evolution of prices in any given country.

  • Second, the separation of operational and regulatory function. It has a positive impact on the quality of universal service.

In addition, liberalisation has had a very positive impact on incumbent operators. In a matter of a few years, most of them have evolved from public administrations to innovative and competitive companies that expand internationally.

But still the EU liberalisation is far from being completed. This is particularly evident in local communications, which are still largely dominated by former telecoms monopolies. We have achieved a lot, but a lot remains to be done to achieve genuine competition in all market segments.

Proposals for a new regulatory framework for electronic communications have been tabled last summer. The aim is to streamline the existing framework, which is the result of a long and complex procedure over more than a decade. It is also necessary to adapt it to the Internet-driven convergence between telecoms, computers and the media.

Our aim is to have the new framework in place by the beginning of 2002. As a first step, a major piece of legislation to unbundle the local loop already came into force on 1 January 2001. This means that new entrants no longer have to duplicate the incumbent's local network to get access to the local network.

This will have considerable impact on the market. Unbundling will drive tariffs down and encourage innovation in Internet access. What we need now is a major effort at practical level by regulators, incumbents and new entrants to see the emergence of a truly competitive local market, as early as possible this year.

To conclude on the impact of the EU telecoms say, there is now strong evidence that the more competition, the better. However, the EU experience also indicates that rules may be needed to generate competition in certain market segments. Hence the importance of independent regulatory authorities.

2. ACCESS FOR ALL, AN INCLUSIVE INFORMATION SOCIETY

The accelerated penetration of digital technologies and the Internet in all areas of human activity is rapidly changing the way we live, work and do business. They are already widely deployed in Europe. Let me give you a few examples:

  • 60% of the European population has a mobile phone.

  • 45% of Europeans use a computer at work.

  • close to 30% of EU homes have an Internet connection.

Today, the information society has already become a reality for a majority of Europeans. At the same time, there is a serious risk of exacerbating existing social discrepancies, and worse even, of creating new forms of exclusion. That's what Americans call the digital divide. We prefer to talk about social inclusiveness in the information society. It calls for action at several levels:

  • First, we have to prevent the formation of the digital gap for younger generations. Therefore, all young Europeans must acquire, at school, the essential digital skills they will need to live, work and be responsible citizens in the information age.

  • Second, we have to ensure the employability of people already on the job market. Many need to adapt their skills or acquire new ones. Two factors amplify this problem: the ageing of Europe's workforce, and the accelerated outdating of skills due to the fast pace of technology development. We need to promote life-long learning for all Europeans.

  • Third, we must mend the growing skill gap. European industry is said to be short of about a million workers in the information technology sector alone. Life-long learning will contribute to solving this issue. In parallel, we have to adapt higher education and encourage young people in larger numbers to embrace scientific, technological and engineering carriers. And we need to be attractive for foreign talents globally.

  • Fourth, we have to mend the social gap. There is a risk of perpetuating, and even reinforcing existing social discrepancies. The issue is a complex one. The US Digital Divide Report emphasises discrepancies that exist between different ethnic and cultural communities, independently of income levels. But on the other hand many EU and also US reports show, that families with children, even with low income, are more likely to get on-line than couples with no children, even with high income.

  • Fifth, we have to fight all other sources of digital exclusion. I'm thinking in particular about sick, elderly or disabled people. Modern technology provides them with new opportunities to be better integrated in society and to live an independent life at home. This, however, requires that we invest in developing adequate technologies. The market alone may not do that, at least in the initial phase of the information society.

All of these issues are addressed by the eEurope Action Plan, which sets ambitious targets.

We must remember that inclusiveness in the information age is more than a social objective. It is also a major competitive asset for Europe. The number of people on-line is fundamental. The so-called Metcalfe Law tells us that the value of the network goes up as the square of the number of users. Metcalfe's Law is more a rule of thumb than a law. It's common sense.

Paul Krugman wrote an article criticising Metcalfe's Law. He said that in building the network, one tends to do the most valuable connections first. Is the Net effect increasing or diminishing returns? It can go either way, argues Krugman, based on examples of the history of the US telegraph.

It is clear that new network capabilities will first attract the most prosperous and skilled people. In Europe and the USA, after initial expansion has reached about 25-35% of the population, the incremental value of further expansion is less, and it continues to decrease. Continued expansion to near 100% of the population has diminishing economic returns. This, however, is not true for public services, where a large incremental value can be associated with full social inclusion.

3. ON-LINE PUBLIC SERVICES

I have underlined before the benefit of having as many citizens on-line as possible. All the same, as the number of connected citizens grows, so will the incentive for government to offer efficient and diversified on-line public services. Much progress has already been achieved regarding the use of the Internet by governments.

Access to public documents and legislation is improving. That's 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. It is all very well to be able to find administrative forms on-line and to download them. But having to print them out, fill them in, and then send them back by regular mail is not yet an e-government.

The real change will be true interactivity in public services. A major reform of public services will then become possible. Responsiveness, citizen-friendliness and quality of service will become new standards for public services. In parallel, government will become more competitive. Old and expensive service delivery methods will be replaced by more carefully tailored and targeted services with important cost-savings and increased efficiency.

One area with huge potential is health. The technological possibilities are there, but we still have to take many steps to maximise the potential of digital technologies and the Internet for health or rather e-health.

The concept of e-health embraces a wide range of applications, uses and users, ranging across the technology spectrum: from high-tech telemedicine applications, through fully networked health practices and Internet access to patient health data, to the relatively low-tech end of the spectrum, where health services and information are available to citizens over the Net. In Europe we have some very good examples across this spectrum:

  • In the field of professional-to-professional support, medical professionals already make good use of tools that facilitate shared care and professional collaboration. Teleradiology and telecardiology for instance, allow specialists to share patient data via the Internet in order to furnish second opinions and secondary monitoring.

  • In emergency healthcare, Europe is seeing an increased use of new applications. For instance, data collected on ambulances can be directly transmitted to emergency service, so that practitioners have the vital statistics and preliminary test results of the victim upon arrival at the hospital.

  • Europe is also beginning to develop applications which support patient healthcare in non-medical sites, such as the home and the workplace. One example is remote glucose monitoring, which allows to provide the patient with insulin dosage advice on a regular basis from the treating practitioner.

Many of the examples sited are based on EU research. But although we are now, across Europe, getting to a situation where a significant amount of the e-health technological infrastructure is in place, many challenges are ahead of us though these challenges are not purely European in nature:

  • Current national budget allocation to e-health is still rather low.

  • Applications are still often developed on a piecemeal basis to create standalone systems, which quickly become outdated and unusable. We need to move towards integrated and standardised systems which can be adapted to general growth.

  • Acceptance across the related industries and sectors is still too low.

  • Greater legal certainty is needed, in particular regarding the legal status of electronic communication and liability for on-line support and advice.

Meeting these challenges is one of the priorities set in the eEurope Action Plan.

4. HOW MUCH DO WE NEED TO REGULATE THE INTERNET?

Earlier, I underlined the positive impact of government intervention in the liberalisation of telecoms market. What about the Internet? Should it remain a fully unregulated area provided it is one? Or should it be regulated? And if yes, to what extent?

Originally, there were strong opinions about this. Many entrepreneurs would favour a government hands-off policy. They argued that industry regulation or self-regulation, would be sufficient to regulate the Internet, in particular the relations between buyers and vendors.

In sharp contrast, many policy makers would argue that government control should encompass the Internet. After all, the Internet is more than a trading zone: it is a communication medium which penetrates the intimacy of our lives. And it can be used by all sorts of people, sometimes for harmful purposes.

As so often, this is no clear-cut issue: there's merit to each side's position.

My view is that government has a duty to set certain rules in cyberspace. These rules should be narrowly defined to upheld certain fundamental values and preserve the public interest. The problem is, it is possible for any individual government to try to regulate the Internet, but the global nature of the Internet makes it impossible to properly enforce of these rules and sanction their non-respect.

As far as self-regulation is concerned, it is important in the field of e-commerce. We should not overburden this growing sector. But even there, self-regulation may not generate the level of trust and confidence that most citizens and even businesses require.

The conclusion is that neither regulation nor self-regulation taken in isolation provides a viable answer. Effective regulation in the Internet age calls for a new approach. Consensus is now emerging that regulation and self-regulation go hand in hand and not simply side by side - leading to a kind of co-regulation. This implies real cooperation between government and industry, in each other's interest.

A hot item in this area is privacy. The way in which it is addressed will largely determine the future of business-to-consumer e-commerce. The on-line retailers want to collect consumer data and track their purchasing patterns, in order to target their sales and sell this information to direct marketers. Yet at the same time, they have to respond to growing consumers' demands for control over their private data.

A trade-off must be found. The EU approach regarding privacy could set an example. Based on a close collaboration with all parties, it has established a number of user rights. They are technology neutral. It is up to industry to develop mechanisms to enforce them:

  • The Directive on personal data protection, which entered into force in 1998, grants individuals the right to access personal data and rectify them. Individuals have the right to opt out from the use of personal data for direct marketing. In case of sensitive data, such as race and religion, explicit consent is required.

  • The new telecoms package aims to strengthen these rights. This would include the confidentiality of communications, the right of subscribers to determine what personal information can be included in a public directory, and prior consent to receive unsolicited communications for direct marketing (spam).

To sum up, government should focus on essential issues such as personal data, privacy, copyrights, legal responsibility, illegal and harmful content, cybercrime, taxation, etc. As for self-regulation, it should fill-in the gaps, for instance through codes of good conduct or alternative dispute resolution mechanisms, or by choosing the most suitable technology to upheld user rights.

In addition, a sufficient level of cooperation must be achieved between governments to ensure that minimum rules and cooperation mechanisms exist at international level. Whenever possible, EU rules embed such mechanisms, for instance regarding the mutual recognition of electronic signatures generated in a third country. As for the personal data protection directive, it led to the so-called Safe Harbour agreement with the USA.

Given the diversity of political systems and cultural values, achieving a coherent framework at global level will prove very difficult.

The Yahoo! France case points at the main current shortcomings: lack of international rules, and lack of cooperation between industry and government. It also highlights that even between countries that cherish the same democratic values, there can be contradictions in the way these values upheld.

5. WHERE DOES EUROPE STAND IN THE INFORMATION SOCIETY?

Let me now move on to the last part of my exposé: how is Europe doing in the information society? I'm glad to say that a major progress has been achieved in the last months. Two key indicators reflect that:

  • Internet penetration is growing fast. The amount of EU homes connected the Internet has increased by more than a third over 6 months, reaching over 28% in October 2000. This corresponds to the US level 18 months before. Four EU countries have higher penetration levels than the USA. Over a period of 12 months, EU countries with the lowest Internet penetration rates have doubled their penetration rates, and five of them at least tripled it.

  • Mobile phones penetration is skyrocketing. There are now over 235 million mobile users in Europe. Between December 1999 and December 2000, the subscriber basis increased from 36% to 60% of the population. This compares to a 40% penetration rate in the USA, up 9% from last year. The gap between the EU countries with the highest and the lowest mobile penetration levels is shrinking rapidly. And unlike Internet take-up, there is no sign of a North-South divide within the Union.

Regarding businesses, 2001 will be an exciting and challenging year. The evolution of high-tech stock markets in the USA and Europe has raised some doubts about the new economy.

The stock market readjustment had been predicted by many more than a year ago, for instance in Anthony Perkins' "Internet bubble". It had become clear that many "dot-coms" were increasingly overvalued. Investors have become more selective in funding start-ups, which is a sure sign of maturity. But good projects will get access to venture capital, provided they build on significant technological innovation. We have moved into a period of "search for quality".

The year 2001 is likely to be the year of B2B, that is, deeper penetration of the Internet and digital technologies into the entire economic fabric. B2B is an economic revolution:

  • Through the optimal use and exploitation by businesses of the Internet and digital technologies, B2B allows to reengineer corporate structures: purchases, logistics, manufacturing, marketing, distribution, communications.

  • The potential benefits are huge: reduced purchasing and procurement costs, reduced time-to-market, improved product and service quality, greater competitiveness. This is leading to integrated e-business solutions.

Companies are building integrated resource systems on-line, from back office to front office. The real challenge there concerns B2B take-up by SMEs.

The year 2001 will also be important for the mobile internet and mobile e-commerce. The upgrade of GSM networks with GPRS is expected to have an important impact on the evolution of mobile services. Faster transmission speed and always-on connection makes it possible to develop a brand new range of wireless applications. A key issue however is the availability of both services and appropriate terminals: size, weight and user-friendliness are crucial factors for wide take-up.

GPRS will ease the transition for operators, manufacturers and users to true multimedia mobile communications. This will happen from 2002 onwards, with the launch of the third-generation mobile systems throughout Europe: UMTS. The scene is set to make UMTS a success in Europe: high level of mobile penetration, European industry leadership, and the experienced gained through GSM and GPRS. We live now a now a difficult point of discontinuity. We need firm actions to guarantee the European leadership in 3 G and after.

CONCLUSION

Ladies and gentlemen,

To conclude, I wish to quickly wrap up the key messages of my lecture:

  • First, a pro-competitive telecoms liberalisation policy, coupled with a forward-looking and ambitious research policy, remains one of the main leverage of the development of the information society in Europe. The more competition, the wider the take up, the better for the end user.

  • Second, achieving social inclusiveness in the information society is a key government duty. It is also a major competitive asset and the main leverage of economic, societal and political change. The more people on the Net, the faster we'll enjoy the Internet's benefits, both within the EU and globally. Universal access is therefore both a reasonable and a necessary goal.

  • Third, the digital and Internet revolution provides a formidable opportunity to overhaul public services. It could allow to boos responsiveness, quality of service, efficiency and competitiveness in all public sectors. Again, the more people on the network, the faster this change will take place.

  • Fourth, the emergence of a new, pervasive global medium the Internet sets a major challenge for regulators world-wide. This calls for a new form of governance at all levels national, regional and international based on the involvement of all parties: governments, industry, users.

  • Fifth, based on its achievements and technological assets, Europe has the potential to rapidly complete its entry into the information age. This means achieving universal take-up, not only by people and public services, but also by all businesses, independently of size and sector. Europe's model is set to be highly diversified one, with a strong emphasis on mobile communications.

I thank you for your attention.


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