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ICT research and telecoms: Europe's opportunity to lead global competition

Viviane Reding, Member of the European Commission responsible for Information Society and Media

ICT is changing the nature of economic activity and social interaction. It is entwined in our economic and social fabric in areas as diverse as telecommunications, government services, car electronics, or entertainment. This development is fuelled by the increasing pervasiveness and power of the Internet.


ICT is changing the nature of economic activity and social interaction. It is entwined in our economic and social fabric in areas as diverse as telecommunications, government services, car electronics, or entertainment. This development is fuelled by the increasing pervasiveness and power of the Internet.
Businesses are using ICT to improve efficiency and promote innovation. Today, ICT is an integral part of almost every other sector of the economy, and this key set of technologies represents as much as 40% of overall productivity growth.
Doctors are diagnosing patients remotely. Students and researchers use the Internet to participate in distance education and to collaborate with colleagues around the world. Consumers are enjoying cheaper phone calls and making purchases on-line.
The question is: How can we, as policymakers, ensure that Europe continues to harness the potential of ICT, so critical for our economic prosperity and international competitive standing?
Furthermore, how can we help our businesses, administrations and citizens to make the best out of the technology at hand and of its future developments?

Build on strengths
First, we need to build on our strengths: in industry, in technology and in innovation.
1. In telecoms, European equipment manufacturers play leading roles in the development and commercialisation of new generations of broadband data networks. There are now 99 million broadband lines in Europe, reaching about half of all households. Overall, Europe leads the world on broadband, four Member States are ahead of Korea and Japan with over 35% take-up, while 8 member states are ahead of the USA. Europe also leads the world handset market and is shaping the transition to the mobile Internet. European standards for mobile communications continue to dominate and expand world-wide, not only for the second generation but also for the third generation and beyond. Despite the slow start of 3G, there are today more than 290 million subscribers worldwide, in over 220 networks, operating in more than 90 countries with the European standard. That is why I took the decision to define the mobile TV standard DVB-H as the European standard. The lesson is clear Europe can win on technology if we define common standards based on open standards. European companies are in powerful positions in several key segments, acting as dominant forces for innovation. Let me just mention four of these: 2. Europe is also a leading worldwide player in the design, integration and supply of embedded systems. Europes know-how has granted us a large fraction of the market for embedded systems in domains like automotive, industrial automation and avionics. In these domains the European industry is currently leading the world electronics market segments with shares of 30-35%.
3. We also tend to forget that Europe has leading companies in the supply of the enterprise software that equip a large part of the world's major companies and SMEs. This is supported by world leading public research labs in software technologies. We need to build on this and expand further our presence in software and services including in important areas like web-based services.
4. Moreover, Europe is well-positioned in a range of  ICT application areas. For example, European industry has leading positions in personalised health systems, medical equipment and telemedicine systems. Two major European-based companies are world leaders in their fields, and Europe is home to a growing tissue of thousands of innovative SMEs in various sub-sectors of ICT for healthcare. This is why I have pushed foreword a public private partnership in the area of ICT as an assistant to living well in an ageing society.
These are well-recognised European strengths of today. But we also need to place our bets on promising emerging markets.
We are on the threshold of a new era of network and service infrastructures: the Internet of the future. This Future Internet will feature almost unlimited bandwidth capacity, wireless access everywhere, trillions of devices interconnected, integrated security and trust for all parties, and adaptive tools for personal services.
The first phase of this is emerging as an 'Internet of Services' whereby applications, software, communications and storage are provided 'as a service'. Already today, companies are spending 19% of their software budgets on applications delivered as services. European strongholds in enterprise software, in open software and service platforms and in Grid technologies give us a pole position to respond to this new era of the 'Internet of Services'.
But the role of the Future Internet goes beyond exchange of services and processing of information. An 'Internet of Things' is emerging that combines universal network connectivity with sensors such as RFID tags actuators, microsystems and robots, allowing to carry out, thanks to the Internet to control actions like healthcare monitoring, adaptive energy management, retail and logistics. This evolution presents enormous opportunities that we cannot afford to miss. Today, Europe is a leading region in RFID related R&D, and European enterprises are at the forefront of bringing RFID solutions to the market.
Let me mention another high potential area: ICT for energy efficiency. This includes not only energy use of ICT equipment and services but also, and mainly, ICT-enabled improvements in energy efficiency in areas such as heating and lighting buildings, manufacturing, transport and electrical power distribution; and ICT-enabled structural change to new services and practices.
Finally, let me point out the area of photonics. The world market for photonics is already more than 200 billion euro per year. Fast Internet is possible only through optical fibre communication. DVD devices, displays, lighting products are all significant established photonics markets. Future important markets include sensing systems and analysis techniques based on photonics, for instance in health, security and environmental screening.
European suppliers already play a strong role in these markets. In key segments such as lighting, medical technology, measurement and automated vision, the European share ranges from 25 to 45%. We need to make sure that we build on this and capitalise on the competitive advantage that photonics offers us.

Raise the game
To reinforce our strengths and seize new opportunities, we need to raise our game. Europe can, and should, be in a leading position to shape and benefit from future developments in this sector.
What does this mean? It means that we need to promote systems that are more complete and integrated systems that combine demand- and supply-side measures systems that include more vertical user-producer interactions systems that are more open.
In Spring next year I will propose a series of public policy measures on this, what will be in my proposals?  First, the modernisation of services in areas of public interest. Given the challenges ahead ageing populations, rising energy costs, congested transport systems the public sector in Europe needs to embark on an ambitious transformation to innovate the way public services are operated and to provide new value added services to our citizens.
These transformations rely on successfully deploying new technologically innovative solutions. And ICT is recognised as one of the key technologies that are at the heart of a number of these transformations.
This is why I am advocating a more strategic use of public procurement which would empower the public sector in Europe to innovate faster. More pre-commercial procurements of ICT in public services would also open up new markets of industrial leadership for the European supplier base through the creation of competitive first mover advantages. This process is moving ahead but very slowly due to the predominance of local thinking. If we want Europe to be a big force in the world of technology then we have to think continental.
Second we must engage in efforts defragment our markets and to convert knowledge capital into economic growth. We must take a systemic view to pooling and coordinating our resources and our investments. We must insist on and focus our resources on those measures that will make a real difference. When I took over this portfolio I realised very soon that research was taking place in separate ivory towers rather than building critical mass in areas of European strength. We will never build the single market if each country keeps on running its own little show in each of 27 little corners.
It soon became obvious to me that despite the self-evident gains from spending more on ICT research for growth and jobs getting more public funds for ICT research was going to be difficult. So I went to the industry in order to build a bottom-up approach with to set the priorities, to emphasise excellence, to build the critical EU scale, to enhance synergies and to reduce the redundancy and double work. It also means much closer linkages between, on the one hand, public and private market needs and, on the other hand, research and technological innovations.
We now have 9 European Technology Platforms in Europe each of them covering a key area of research and technology development. Two of them have become Joint Technology Initiatives, ARTEMIS in embedded systems and ENIAC in nanoelectronics, and together with the the Joint National Programme on ICT for independent living, now have pioneering actions in key areas that are pool substantial public and private research efforts at Community and national level. This adds up to billions of euros targeted on Europe's future potential to innovate and grow.
Let us look at another area where Europe's "my own little world" approach is self defeating. Europe has a security mentality, we do not easily embrace risk. This is clearly demonstrated if we look at the figures on venture capital. Today, California alone attracts twice as much venture capital as the whole of Europe. Silicon Valley and San Diego are still the investment hotbeds as they represent one-third of all VC investments worldwide 10 out of 30 B in 2007. Clearly, the continued fragmentation of the European market place is the main factor behind the low level of investments in Europe.
Third, that is why we must prioritise key areas for research and raise investments. The ICT sector is the largest R&D investor in Europe at 35 B per year, which represents more than a quarter of all business R&D investments. Even so, Europe's ICT sector spends only around half as much on R&D as its US counterpart. This is true both in absolute amounts and relative to the size of the economy. European public funding of ICT R&D is also significantly lower than elsewhere, and there are significant gaps between the Member States.
We need absolutely to reinforce our private and public investments in ICT R&D and innovation. This means more coherent and integrated markets, concentrated and specialised research efforts and higher levels of investment at private and public levels. At European level we must follow suit and strengthen our ICT research and innovation financing; and we must help secure new public and private sources of funding.
Fourth and finally, in order to facilitate the emergence of competitive, open and innovation-friendly markets and to support early commercialisation of research results, we also need to consider three complementary areas that are crucial for fostering innovation: regulation, standardisation and intellectual property regimes.
For standardisation, we must improve the current structures and processes in Europe to increase their openness, reactivity and speed.
For IPR regimes, we need to move towards a more efficient European IPR policy including more effective patent systems. And obviously - a key instrument at our disposal is regulation. We are entering a critical period for the telecoms regulatory reform and I would like to end my presentation with a few messages on this.
It is essential that Europe boosts its ICT and telecom leadership through our greatest unrealised asset: open competition in the Single Market. Liberalisation of the telecom sector through EU rules is overall a European success story that has delivered more choice, higher quality and cheaper prices for all of us. Yet a real internal market in telecoms is still far from being a reality. My approach as a regulator has been to attack all those areas where bottlenecks hold back competition and the development of the Single Market.
For example, the need for the Commission to regulate international roaming prices at EU level is actually just a symptom of a failure of competition and the lack of Single Market. Following our recent review of the roaming regulation for voice services I have concluded that it should be extended for a further three years until 2013. Furthermore, I have also proposed to regulate roaming SMS and data services. I want to see the end of artificial borders which prevent consumers and business customers from benefiting fully from a single borderless market for mobile Internet and SMS services. The European telecoms market remains fragmented, especially because 27 national telecom authorities have different approaches to similar competition problems. For our industry, this means that all significant business opportunities offered by new innovations are being slowed down by regulatory uncertainty and by a lack of European-wide scale. The very least we need is greater consistency in the application of regulation to get a level playing field to allow competition to do its work.
The Commission's proposals to the EP and Council for telecom reform tackle this problem in several ways. The proposed new Community body for telecoms is meant to create a centre of excellence at EU level in close cooperation with the national regulators and with the Commission. It will enable e-communications services to be offered and used under similar conditions so that we can create a level playing field in Europe.
This is particularly important for providers of cross-border e-communications and IT services, as well as for all those companies that want to do business across Europe, for which they need seamless business services. For the industry as a whole, greater legal certainty means substantial benefits in terms of lower costs and reduced regulatory risk for ICT and R&D investments.
Let me finally turn to the fields of radio spectrum where the need for a single market is most obvious. Besides having a fragmented European regulatory system, the spectrum itself is fragmented into parts each dedicated to a specific service offered through a specific technology.
We have in effect a large number of national scale oligopolies who are protecting their market shares, rather than competing in attracting customers by delivering new or improved services.
Ahead of us, there is a digital dividend that the whole European society can benefit from. There are now many studies that show that the benefits from the digital dividend could deliver billions of euros of extra growth. When I started talking about this three years ago some member states told me there is no dividend, because they had already promised the spectrum that will be released by the digital switch off to the broadcasters. Now at least most of them realise that there is a dividend. My proposal is that we should look at this sixfold increase in efficiency from digital compression in a fair way. Let's give 50% of the gains back to the broadcasters to experiment with HDTV or Mobile TV and use the other 50% for innovative broadband such as bringing the high speed internet to all Europeans to cover all the white spots where there is no fast internet because otherwise the fibre networks will never reach out to everyone. 

In conclusion
Our job is to make sure that Europe is well-equipped to harness the ICT potential. What should we do?
One: we must simultaneously pull through market demand and push through research and new technological developments.
Two: we must facilitate the emergence of new markets and foster more competition driving investments and innovation.
Three: we must prioritise European R&D into key areas building on our industry and technology strengths, and concentrating and specialising our resources and skills.
Let us join up research-innovation and commercialisation in a targeted way around some crucial social and economic policy goals. This will create growth and jobs. 

Source: Speech of Viviane Reding, Member of the European Commission responsible for Information Societyand Media, European Policy Centre: Breakfast Policy Briefing, Brussels, 3 October 2008


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