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Neelie Kroes

Vice-President of the European Commission responsible for the Digital Agenda

Investing in the future: meeting the Internet's astonishing promise

"Talk in Brussels" Deutsche Telekom Annual Reception

Brussels, 29 November 2011

Ladies and Gentlemen,

I'd like to talk today about the main trends in the blossoming world of Internet content – and how we need to respond.

But first I would like to recall why I find the Digital Agenda is so important. And why being responsible for the telecoms sector is for me such a rewarding challenge.

First, it's a sector that makes up a significant part of our economies: on its own worth hundreds of billions of euros, and boosting productivity throughout the economy. Directly employing millions, while serving the needs of virtually every European.

Second, it's a responsive and changing sector. The openness, competition, and expansion resulting from EU action has changed the sector enormously.

Gone are the days of national monopolies. These days, telecom companies are not just confined to national markets but can reach out to 500 million customers. Ordinary Europeans benefit from greater choice, better service, and lower prices, with fixed line call prices falling 60% since 1998. And competitive pressures within the sector drive investment, initiative, and innovation.

Third, and most of all, it's a sector that offers us hope for the future. Already, ICTs contribute half of our productivity growth and the Internet has created millions of jobs.

This can continue. Increasing broadband penetration by just 10 percentage points could boost growth by 0.9 to 1.5%, and create millions more jobs. The Internet and related technologies could become the creative crucible for tomorrow's economy. It could transform every business, every transaction, every interaction.

Especially if we have the right policies to support it. New Information and Communications Technologies are an astonishing platform for innovation and openness; an environment that knows no creative limits, and no national borders. Within our Single Market, we need the right framework and infrastructure, digital oxygen to make the online world bloom.

So today I want to talk about how we want to do that.

One of the most interesting trends to notice in the online world is the astonishing boom in demand.

More and more Europeans are going online. In 2004, a mere 40% of European households had access to the Internet at home. Just 6 years later, 70% of households are online.

These trends are amazing. But that's not all.

Because as more and more citizens get online, so they expect and demand more stuff to do online. This produces a virtuous circle of demand: in turn stimulating the supply of new content, new material, new services.

These services are expanding rapidly, in terms of diversity, intensity and sophistication. Once it was about checking email or reading text online. Now Europeans increasingly want access to any content, at any time, on any device. Mum catches up with her favourite TV series, while dad chats to distant friends on Skype, while their kids check out the top 40 or play games online with their friends. Not just passively reviewing, but interacting and creating.

This booming demand for audiovisual content is noticeable everywhere. Here in Belgium, in just 4 years, the proportion of people playing or downloading online games, images, films or music doubled. From one person in six, to one in three.

That impacts on the infrastructure. Because, these new audiovisual services are hungry for bandwidth. Last year an average internet user might have used just over 7.3 gigabytes per month. Some estimate that this could be 25 gigabytes per user by 2015.

Further into the future, I am certain that this trend will continue.

Because I know online content producers will rise to the challenge of increasing demand. Many European consumers already take for granted music services like iTunes and Spotify; innovations like these will spread. Plus services like video-on-demand could catch on yet more. In North America, Netflix is already the largest single source of Internet traffic.

And there will also be new ways of connecting, like Connected TVs, blu-ray players and other set-top-box devices. In France, Germany and the UK alone, there could be over 40 million such units by 2014, a fivefold increase over just five years. All used for bandwidth-intensive audiovisual content.

And that is just the start. Ten years into the future, we could have new e-Health services, new online education programmes, or new services stimulated by the Internet of Things. Services that we couldn't even imagine today.

More users, expecting more sophisticated services online, each consuming more bandwidth. That all means more traffic on our networks.

And more traffic means we need a better infrastructure. An infrastructure that is the backbone, not the bottleneck, of the digital revolution. This is the kind of support that next generation access, NGA, can provide.

I realise that demand for NGA relies on consumer awareness. Those who haven't yet seen specifically what the next generation can offer are not clamouring to get access. Even though they are demanding bandwidth more and more all the time.

And this uncertainty about consumer demand makes it hard to commit to investment.

That is a message I have heard from the industry. I have heard it loud and clear. I must say, I am much more optimistic, in particular when I see the trends in consumer traffic. But there is of course scope for initiatives that can improve awareness.

So one answer is "living labs".

Such initiatives can pilot and showcase the benefits of high speed broadband. They can build consumer awareness about the incredible possibilities of new high-speed services, and new high-speed applications. And they can give investors the information they need to predict demand, and build their business case.

In short, they can both simulate customer appetite: and stimulate it.

This is a win-win game for everyone, from the top of the value chain to the end consumer.

And showing what NGA can offer works. Overseas, the "iJapan" strategy has pushed the creation of services like e-Health, e-Government and online education. This has clearly stimulated consumer awareness of the advantages of high speed.

Close to home, Deutsche Telekom's own initiative, the T-City initiative in Friedrichshafen, is another good example. And I warmly welcome it.

The Deutsche Telekom initiative is particularly positive because it is open, and carried out in collaboration with third parties. So it demonstrates the full range of applications offered by next generation access. From business and administration to health, education, mobility and culture.

I'd like to encourage other integrated players to put in place their own 'living labs', too. Ideally, of course, they would use the 'full' Next Generation Access, for example fibre to the home.

For our part, in the Commission, I will also be working on this over the coming months. Because a number of EU initiatives could be tailor-made to test new services over high-speed networks.

Next generation networks offer us an enormous potential. The opportunities offered by new Internet applications and services could really pay off for our citizens, they can pay off for our innovative entrepreneurs. And they could pay off for our economy as a whole.

When you look at our international competitors – Japan, the US, even Russia – they are really speeding up on providing Next Generation Access. We could be in serious trouble if we want to compete in tomorrow's global economy.

This is why, as well as dealing with demand, it is very important for me to ensure we have the right environment, the right incentives for operators to invest in the next generation.

And I have been interested in models that would allow us to do this.

I know that there is no consensus in the industry on the best way to achieve these goals. But this is why we are exploring models which could find a good middle way.

Models which could, overall, reassure markets that investing in next generation access is safe and profitable for the long term.

Alongside that, to ensure an adequate return on Next Generation Access, we are exploring the scope for guidance on wholesale pricing for next generation networks. In particular, how certain risks, like the risk of low consumer take-up, are taken into account.

On this issue, and on the issue of non-discrimination, our consultations have just closed. And we will be examining your contributions very carefully.

At the moment, we face very important decisions about investment. Decisions that could determine what our economy looks like in ten years' time. That determine whether Europe will be a power on the world stage, whether we can afford our social model, whether our children have good jobs to go to.

I hope we can find the right way forward. To invest in the future and meet the astonishing promise of the Internet revolution.

Thank you.

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