Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - Connecting Europe at high speed: recent developments in the sector of electronic communications
Date: 2004-02-03
Institutions: European Commission
Subjects: Internet, economic growth, information policy, information technology, investment, productivity, telecommunications

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 3.2.2004 
COM(2004) 61 final 

COMMUNICATION FROM THE COMMISSION  
TO THE COUNCIL, THE EUROPEAN PARLIAMENT, 
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 

Connecting Europe at high speed: recent developments in the sector of electronic 
communications 

EN 

   EN 

 
 
 
  
Executive Summary 

Information  and  Communication  Technologies  (ICTs)  are  one  of  the  important  dynamic 
forces for growth in modern economies. They contribute to transforming economic and social 
activities, lead to higher labour productivity growth, and foster economic and social cohesion. 
Four years after the Lisbon European Council, the creation of a favourable environment for 
the  spread  of  ICTs  remains  an  important  responsibility  for  policy  makers.  This  is  why  the 
2004  Spring  Report  recalls  the  importance  of  information  society  policy  to  improve 
competitiveness.  It  also  invites  the  Council  and  the  European  Parliament  to  take  action  in 
those sectors that are considered to be of strategic importance for European growth. 

The  electronic  communication  sector  plays  such  a  role  because  of  its  size,  dynamism  and 
impact  on  nearly  all  other  economic  activities.  Recent  evidence  shows  that  it  has  been  the 
largest contributor to European labour productivity growth.  

The sector grew fast in the late nineties. In 2000, it faced a sharp downturn. After two years of 
consolidation,  in  2004  conditions seem to  be  right for the sector to return to higher rates of 
growth. Improved financial conditions for the operators combined with continued growth in 
revenue from services create the conditions for the sector to recover. Sustainable growth for 
the sector can only be achieved through a revival in capital spending and further deployment 
of new innovative services. This calls for actions on facilitating deployment of the necessary 
infrastructure, broadband and Third Generation Mobile Communications (3G). 

This  Communication  highlights  the  need  for  sustained  political  commitment  to  improve  the 
effective  use  of  ICTs  in  the  Union  and  identifies  actions  to  remove  barriers  to  further 
investment. In particular: 

•  The  new  regulatory  framework  for  electronic  communications  enhances  competition  and 
provides  a  predictable  legal  environment  improving  certainty  for  investors.  In  2004, 
Member  States  who  have  not  yet  fulfilled  their  regulatory  obligations  should  ensure 
complete  and  effective  implementation.  The  Commission  will  work  with  the  relevant 
National Regulatory Authorities to complete the work on remedies. 

•  The  Commission  in  2003  has  set  up  a  Mobile  Communications  &  Technology  Platform 
with  the  aim  of  identifying  stakeholders’  views  on  challenges  to  facilitate  the  roll-out  of 
3G networks. As the key challenges touch upon a wide variety of areas, the Commission 
will  address  them  in  a  Communication  to  the  Council  and  the  European  Parliament.  To 
accelerate work on interoperability, the Commission will bring the relevant actors together 
through its R&D Framework programme.The eEurope 2005 Action Plan is the instrument 
designed to encourage the use of ICTs. The Council is invited to support the eEurope Mid-
Term Review process.  

•  Within  the eEurope  framework,  Member  States  who  have  not  yet  put  in  place  a  national 
broadband  strategy  are  called  upon  to  do  so  within  the  minimum  delay.  On  the  basis  of 
their  national  strategy,  they  should  encourage  digital-divide  quick-start  projects.  The 
Commission will report on national broadband strategies to the Council and the European 
Parliament.  It  will  also  work  with  industry  to  address  the  issues  possibly  hampering  the 
development of new innovative services (DRM systems, interoperability, micro-payments, 
etc.).  This  work  will  aim  at  facilitating  the  development  of  services  whilst  taking  into 
account other primary interests such as financial stability and consumers’ confidence.   

2 

 
 
  
 
If  the  Union  is  to  maximise  the  impact  of  ICTs  as  the  engine  for  growth,  productivity  and 
jobs, it is essential to move forward on the different actions identified in this Communication. 
They  represent  individual  links  on  a  chain  that  can  pull  the  Union  closer  to  the  Lisbon 
strategy's  goals  of  sustainable  growth  and  jobs.  Success  requires  the  strengthening  of  the 
political  commitment  to  a  knowledge-based  economy  that  was  so  evident  in  March  2000 
when the Lisbon strategy was launched. It is therefore important for the European Council to 
give  a  clear  political  signal  by  taking  the  necessary  steps  to  foster  the  conditions  in  which 
Europe's information and communication technology industries can thrive. 

3 

 
 
  
 
TABLE OF CONTENTS 

1. 

2. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

4.3. 

4.4 

5. 

Introduction .................................................................................................................. 5 

Growth and productivity: the role of ICTs................................................................... 5 

Recent developments in the electronic communications sector................................... 7 

General developments.................................................................................................. 7 

Developments in broadband and third generation mobile communications................ 8 

Policy Challenges......................................................................................................... 9 

Regulatory challenges ................................................................................................ 10 

Increasing coverage in under-served areas ................................................................ 11 

Stimulating demand ................................................................................................... 12 

Third generation mobile communications ................................................................. 14 

Conclusions ................................................................................................................ 16 

4 

 
 
  
 
1. 

INTRODUCTION 

Information and communication technologies (ICTs) are one of the important dynamic forces 
for growth in modern economies. To attain its current ambitious economic and social goals, 
the European Union will have to foster investment in ICTs and ensure its effective use in the 
wide economy.  

This message was endorsed by the European Council in Lisbon in March 2000. The European 
Union  consequently  launched  the  eEurope  Action  plans  to  support  the  take  up  of  ICTs, 
adopted  a  new  regulatory  framework  for  the  electronic  communication  sector  and  a  new 
Framework Programme to support research in the information society area.  

The  political  commitment  in  Lisbon  came  at  the  time  of  the  enthusiasm  for  the  “new 
economy”. Despite the following downturn in the  ICT sector, innovation has continued and 
ICTs have spread as general-purpose technologies. They contribute to transforming economic 
and social activities, lead to higher labour productivity growth, and foster economic and social 
cohesion.  This  is  why,  four  years  later,  the  creation  of  a  favourable  environment  for  the 
spread  of  ICTs  remains  an  important  responsibility  for  policy  makers.  Therefore,  the  2004 
Spring  Report1  recalls 
improve 
competitiveness. It also calls for action to be taken in those sectors that are considered to be of 
strategic importance for European growth. 

information  society  policy 

importance  of 

the 

to 

The  electronic  communication  sector  plays  such  a  role  because  of  its  size,  dynamism  and 
impact  on  nearly  all  other  economic  activities. Developments  in  these  areas  have  been  kept 
under  close  review.  In  response  to  the  difficulties  that  the  electronic  communication  sector 
experienced  in  2001-2002,  the  European  Commission  addressed  a  Communication2  to  the 
European  Council  of  March  2003.  The  European  Council  endorsed  the  analysis  of  the 
Commission  and  invited  it  to  report  back  on  recent  developments  in  time  for  the  European 
Council  of  spring  2004.  In  December  2003,  the  European  Council  requested  this  report  to 
address  issues  relating  to  the  deployment  of  third  generation  mobile  communications  and 
high-speed (broadband) internet. 

This  Communication  responds  to  these  requests,  identifies  the  actions  to  remove  barriers  to 
further investment, and highlights the need for sustained political commitment to improve the 
effective  use  of  ICTs  in  the  Union.  Section  two  reviews  the  reasons  why  ICTs  are  so 
important for growth and competitiveness. Section three looks at recent developments in the 
electronic  communication  sector,  in  particular  in  terms  of  broadband  and  3G  mobile 
communications, while section four reports on challenges and policy responses. 

2. 

GROWTH AND PRODUCTIVITY: THE ROLE OF ICTS 

European  economic  performance  continues  to  be  disappointing.  In  2003,  real  economic 
growth was only 0.8 per cent and, while a significant improvement is expected in the course 
of this year, in 2005 growth should reach 2.5 per cent. As indicated in the 2004 Spring Report, 
the  potential  rate  of  growth  of  the  European  economy  is  still  around  two  per  cent  a  year 
against the Lisbon target of at least three per cent. 

1 
2 

COM(2004) 29 
Electronic communications: the road to the knowledge economy, COM(2003) 65. 

5 

 
 
  
 
                                                 
This performance contrasts with the dynamism of many other economies and, notably, with 
that of the United States, which is recovering from recession and returning to rates of growth 
similar to those of the second half of the 1990s. The growth gap between the EU and the US 
has become particularly evident since the mid-nineties. Various studies have tried to explain 
it, focusing in particular on the growth rate of labour productivity.  

Productivity  –  the  amount  of  output  per  hour  of  work  –  is  a  key  determinant  of  potential 
growth.  The  United  States  has  experienced  an  important  acceleration  in  labour  productivity 
since  the  mid-nineties,  outpacing  growth  in  European  productivity  gains.  Differences  in 
productivity  growth  between  the  two  economies  are  believed  to  be  closely  linked  to  the 
production and diffusion of ICTs.  

There  is  widespread  agreement  that  production  of  ICTs  contributes  directly  to  overall 
productivity  growth  and  has  strongly  contributed  to  the  acceleration  in  performance  in  the 
United States. A similar effect is evident also in some European countries, although the size 
of the ICT-producing sector is smaller. 

A  consensus  is  also  emerging  on  the  proposition  that  the  diffusion  of  ICTs  is  a  prime 
contributor to productivity  growth  elsewhere in  the  economy.  However,  simply  investing  in 
computers and modern communications is not enough. Productivity gains are only achieved 
when firms reorganise their business processes and invest in training. This takes time and, as 
European  companies  invested  less  and  later  in  ICTs  than  their  American  competitors, 
productivity gains are expected with a lag. 

Recent empirical evidence3 confirms that most of the labour productivity growth in the United 
States can be traced to the industries that either produce ICTs or use ICTs more intensively. 
The  economy  of  the  United  States  outperformed  that  of  the  Union  both  in  ICT–producing 
manufacturing industry (semi-conductors and electronic equipment) and in the main intensive 
ICT  service  industries,  namely  financial  services  and  wholesale  and  retail  trade.  The 
European strength, however, is in electronic communications: the sector is and has been the 
largest contributor to productivity growth in the Union over the recent years.  

The realisation of productivity gains through the development, adoption and effective use of 
new technologies ultimately depends on a growth-conducive economic environment. Stronger 
product  market  competition,  a  favourable  regulatory  environment  and  the  lowering  of  entry 
and  exit  barriers  create  greater  incentives  to  invest  in  new  technologies  and  business 
processes. 

These conclusions reinforce the case for investing in ICTs but, more importantly, point to the 
need  to  use  them  more  effectively.  Progress  in  structural  reforms  is  introducing  greater 
flexibility  in  product  and  labour  markets  facilitating  the  take  up  of  new  technologies,  the 
reorganisation  of  business  practices  and  the  re-skilling  of  the  workforce.  Furthermore,  to 
narrow the productivity gap, the European Union should exploit its comparative advantage of 
having a thriving electronic communication sector. 

3 

Van Ark, B. and Mahony, O. (2003), EU Productivity and Competitiveness: An Industry Perspective, 
http://europa.eu.int/comm/enterprise/enterprise_policy/competitiveness/doc/eu_competitiveness_a_sect
oral_perspective.pdf 

6 

 
 
  
 
                                                 
3. 

RECENT DEVELOPMENTS IN THE ELECTRONIC COMMUNICATIONS SECTOR 

The electronic communication sector grew fast in the late nineties. In 2000, it faced a sharp 
downturn.  After  three  years  of  consolidation,  in  2004  conditions  seem  to  be  right  for  the 
sector to return to higher rates of growth. 

Improved financial conditions for the operators combined with continued growth in revenue 
from  services  create  the  conditions  for  the  sector  to  recover.  For  the  modest  expansion  in 
2003  to  turn  into  sustainable  growth  for  the  sector,  capital  spending  must  be  increased  and 
new innovative services further deployed.  

3.1. 

General developments 

Fast growth in the ICT sector at the end of the nineties led to over-investment, excessive stock 
market  valuations,  unsustainable  business  models  and  high  level  of  payments  for  third 
generation mobile communications (“3G”) licences in some Member States. The collapse in 
market  valuations  in  2000  was  followed  by  a  period  of  severe  adjustment.  In  the  electronic 
communication sector, high levels of debt forced some operators to implement consolidation 
plans, delaying the roll out of 3G networks.  

Debt  restructuring  and  cost  cutting  activities  have  been  accompanied  by  a  contraction  in 
capital  spending.  The  reduction  in  investment  had  significant  negative  repercussions  on 
equipment  manufacturing  firms,  locus  of  most  of  research  and  development  effort  in  the 
sector. It also reduced the capacity of the sector as a whole to continue playing its leading role 
in the dynamics of innovation and productivity in the Union’s economy. 

Nearly four years after the fall in stock market valuations, an improvement in the state of the 
electronic communication sector is visible. In 2003 the sector has experienced a modest rate 
of expansion. Revenues are estimated to have increased by 2.6 per cent, a rate comparable to 
that of the growth of nominal GDP4. If account is taken of the fact that prices have continued 
to fall, the real rate of expansion of the sector is faster than that of the rest of the economy. 

A more complete picture is obtained by looking at trends within the two main segments of the 
electronic communication sector, the service and the equipment segments. 

Most of the overall increase in revenues for the sector has come from the service segment. Its 
growth in 2003 is estimated to have reached 4 per cent, mainly driven by mobile services and 
complemented  by  the  continued  expansion  of  broadband  and  Internet  services.  Higher 
revenues,  increases  in  profits5  and  a  continued  reduction  in  capital  expenditure  indicate 
improvement  in  market  players’  financial  conditions.  The  strong  reduction  in  investment 
activities  levelled  off  during  the  second  half  of  2003,  making  the  capital  expenditure-to-
revenue  ratio  tend  towards  a  stable  rate  in  the  range  of  12  to  15  per  cent.  A  return  to  a 
sustainable growth path requires a revival in capital spending.  

The  reduction  in  investment  has  contributed  to  improve  the  financial  fundamentals  of  the 
service segment but has reduced demand for the equipment segment of the sector. Within the 
latter,  the  end-user  equipment  market  is  estimated  to  have  declined  by  2.3  per  cent  and  the 

4 
5 

Nominal GDP growth does not take account of inflation and is higher than real GDP growth. 
Various  indicators  of  profitability  are  EBITDA  (Earnings  Before  Interest,  Taxes,  Depreciation  and 
Amortisation), free cash flow to equity, underlying net income. 

7 

 
 
  
 
                                                 
network equipment market by 5.4 per cent in 20036. However, the evidence from the mobile 
section  is  mixed,  with  some  companies  enjoying  positive  growth  and  others  registering  net 
income losses. Performance seems to be positively related to sales in the end users’ equipment 
market. 

Any revival in capital spending by the service segment will feed directly into higher sales of 
equipment. The outlook for 2004 is therefore heavily dependent on the capacity of the sector 
to start investing again. The rate of investment in turn will be affected by public action: the 
implementation of the new regulatory framework will provide greater legal predictability; the 
implementation  of  national  broadband  strategies  will  create  additional  demand;  and  the 
removal of regulatory and technological barriers will facilitate the roll-out of 3G networks. 

A prerequisite for increased investment is continued revenue growth from services. Margins 
on  traditional  services  have  been  cut  because  of  competitive  pressures,  and  the  sector  must 
succeed  in  attracting  customers  through  the  provision  of  innovative  services  at  competitive 
prices. Voice over the Internet Protocol, for example, sends voice as digital information over 
the  Internet  and  through  3G  networks.  High-speed  networks  also  facilitate  data  exchange, 
offering the opportunity to deliver entirely new services.  

The Commission proposed a Directive on services in the Internal Market, aiming to improve 
the  regulatory  environment  for  a  very  wide  range  of  services  in  the  EU7.  Although  the 
proposal  does  not  deal  with  issues  covered  by  the  new  regulatory  framework  for  electronic 
communications,  it  aims  to  benefit  all  users  of  services,  including  those  in  the  electronic 
communication sector, through the removal of barriers to service provision and to the spread 
of innovation. 

As  broadband  becomes  more  common  in  homes  and  businesses  and  high-speed  wireless 
networks evolve, the best prospects for increases in revenues are from innovative services that 
run on such infrastructure. Further development in broadband and 3G mobile communications 
are therefore necessary conditions for the recovery process to consolidate. 

3.2. 

Developments in broadband and third generation mobile communications 

20

15

Figure 1

Broadband Subscribers in the EU 

the  most 

The  rapid  growth  of  broadband 
connections  throughout  Europe 
was 
positive 
development  in  the  sector  in 
2003. During the past 12 months 
the  number  of  subscribers  has 
doubled. By October 2003 there 
20  million 
were 
nearly 
the  European 
connections 
in 
Union.  DSL8,  available  via  the 
telephone  network,  is  the  most 
widely 
of 
subscribers) and fastest growing 
platform 
followed  by  cable 
modems. Other technology platforms are still in the early stages with as yet few subscribers. 

deployed 

Source: European Commission

(73% 

January-03

October-02

April-03

July-02

July-03

Other

Total

DSL

s
e
n

n
o

i
l
l
i

10

M

i
l

0

5

October-03

6 
7  
8 

Estimates by EITO, 2003 October Update. 
COM(2004) 2 
Digital Subscriber Line 

8 

 
 
  
 
                                                 
 
3 0 %

2 5 %

F i g u r e   2

still 

though 

B r o a d b a n d  p e n e t r a t i o n
 ( s u b s c r i b e r s   p e r  1 0 0  i n h a b i t a n t s  -  O c t o b e r  2 0 0 3 )

Growth  is  not  uniform  across  the  Union  and  there  are  wide  disparities  in  broadband 
penetration  rates  between  Member  States  (penetration  rate  defined  as  the  number  of 
broadband subscribers as a percentage of total population, see Figure 2). Some EU countries 
perform  well  with 
higher 
penetration rates than the United 
States, 
lagging 
behind  South  Korea9,  Hong 
Kong,  Canada  and  Taiwan. 
Many  less  advanced  Member 
States 
seen 
acceleration  in  growth  and  may 
be  catching  up.  These  positive 
developments  should  not  be 
overestimated: 
broadband 
growth  in  the  best  performing 
Member  States  shows  signs  of 
levelling  off. 
trend 
continues, the Union may fail to 
catch up with its main international competitors. 

recently 

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this 

c a b le  m o d e m  &  o th e r  te c h n o lo g ie s

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As regards mobile communications, the evolution from second to third generation implies the 
development of new services based on the possibility of transferring large amounts of data. As 
a result, 3G will provide businesses with new opportunities for achieving productivity gains.  

Growth in the mobile sector is driven by services offered over 2G and 2.5G, resulting in high 
penetration and revenues. 3G markets are beginning to take off, with services available in five 
Member States. Subscriptions are rising and operators coming forward with a more concrete 
vision  of  the  new  services,  including  peer-to-peer  data  transfers.  Operators  are  for  the  most 
part keen to avoid past mistakes and to market new services rather than a new technology, but 
this has the unfortunate side-effect of giving a low public visibility to 3G in many Member 
States. 

In conclusion both the broadband and 3G markets are becoming the most dynamic parts of the 
electronic communication market. However, they have to overcome substantial challenges to 
meet the expectations of growth and competitiveness of the European economy. 

4. 

POLICY CHALLENGES 

Further  deployment  of  new  services  is  primarily  up  to  the  market.  However,  incentives  to 
invest  are  also  affected  by  public  policies:  the  new  regulatory  framework  for  electronic 
communications  aims  at  enhancing  competition  and  stimulating  investment  by  providing  a 
clear  and  predictable  legal  environment;  national  broadband  strategies  include  public 
intervention  to  bridge  the  digital  divide  and  to  improve  demand  through  the  connection  of 

9 

According to the ITU, “The Republic of Korea is an estimated three years ahead of the global average 
in terms of converting Internet users to broadband. The critical mass was attained as early as 2000 and 
since then take-off has been rapid. Households penetration currently stands at two-thirds of the Korean 
population. One of the interesting features of the Korean experience is how many of the new broadband 
users  have  not  previously  experienced  narrowband  Internet  access,  but  instead  subscribed  to  Internet 
services for the first time as broadband users” (ITU, “Birth of broadband”, 2003, p.3). 

9 

 
 
  
 
                                                 
 
 
relevant public administrations; the roll-out of 3G networks requires public action to address 
the removal of the remaining regulatory and technological barriers.  

Recent  developments  and  policy  initiatives  have  led  to  a  focus  on  four  priority  areas: 
improved  legal  predictability  of  regulation,  greater  broadband  coverage  of  remote  and  rural 
areas, stimulation of demand, and challenges to 3G developments. 

4.1. 

Regulatory challenges 

The new regulatory framework is designed to enhance competition and stimulate investment 
in  the  market.  It  facilitates  market  entry  and  is  based  on  a  technologically-neutral  approach 
that takes account of the impact of convergence. It is flexible enough to adapt to fast-changing 
markets, as regulation can be rolled back as soon as markets are deemed competitive. 

Providing a predictable legal environment increases certainty to investors, and stimulates the 
deployment  of  innovative  and  advanced  services  for  users.  A  modern,  cost  effective 
communications infrastructure is a key driver for the European economy.  

Late,  incomplete  or  incorrect  transposition  by  Member  States  is  creating  uncertainty  in  the 
market. The Commission has opened infringement proceedings against a number of Member 
States  for  late  transposition,  and  will  continue  to  press  for  complete  and  effective 
implementation at national level.  

timely 

implementation  of 

the  regulatory  framework  for  electronic 
Effective  and 
communications by the Accession Countries will also make an essential contribution towards 
bringing their communications sector, and their wider economies, more closely into line with 
those of the existing Member States. The Commission therefore urges Accession Countries to 
make  every  effort  to  complete  the  process  of  adapting  their  national  laws  to  ensure 
transposition  of  the  framework  by  the  accession  date  of  1  May  2004.  The  liberalisation  of 
communications networks and services in compliance with the new regulatory framework can 
be expected to add significantly to the potential for growth and technological development in 
those countries. 

The Commission is working with the national regulatory authorities responsible for applying 
the  new  framework  to  develop  guidelines  on  remedies  that  may  be  imposed  on  companies 
with significant market power in specified markets. The aim is to improve consistency in the 
way  remedies  are  applied,  and  to  develop  a  common  conceptual  framework  that  gives 
incentives for progressive infrastructure investment, thereby bringing forward the time when 
regulation can be lifted as there is effective competition in the market. 

This joint work also seeks to provide guidance on the treatment of newly emerging markets. 
To stimulate investment, the Directive10 makes it clear that emerging markets should not be 
subject to inappropriate obligations. 

In summary: 

•  The  new  regulatory  framework  for  electronic  communications  had  to  be  transposed  by  
25 July 2003. Member States who have not yet fulfilled their regulatory obligations should 
ensure complete and effective implementation; infringement proceedings to this effect were 
opened in October 2003. 

10 

Directive 2002/21/EC, Recital 27. 

10 

 
 
  
 
                                                 
•  The Commission and national regulatory authorities must complete the work on remedies 

to be applied to companies with significant market power. 

•  Member  States  must  ensure  that  emerging  markets  are  not  subject  to  inappropriate 

obligations. 

4.2. 

Increasing coverage in under-served areas 

Some  areas  may  be  excluded  from  broadband  provision  because  estimated  demand  is 
insufficient  to  attract  private  investment.  Policy  makers  have,  however,  been  aware  that 
broadband  is  beneficial  to  the  cohesion  of  the  Union.  Thanks  to  improved  interactivity, 
broadband  enables  the  active  participation  of  geographically  isolated  citizens  in  social  and 
democratic life. It improves their living standards by bridging distance, facilitating healthcare, 
education and access to public services.  

Figure 3

Broadband Availability 
% population able to access DSL by location, June 2003

Recent  growth  in  broadband  is  mainly  taking  place  in  urban  areas  (Figure  3).  Exchange  of 
experience  at  the  EU  level  in  December  2003  has  shown  that  regional  and  local  authorities 
have  already  taken  initiatives  to  stimulate  the  deployment  of  infrastructures  in  remote  and 
rural  areas.  The  technological  trend  is  manifold:  in  fixed  lines,  some  municipalities  have 
intervened  by  rolling 
out  fibre  optic  rings; 
in  wireless,  solutions 
such  as  satellite  and 
wireless  LANs  are 
their 
increasing 
Good 
presence. 
also 
practice 
highlighted the role of 
demand  aggregation 
policies 
in  scarcely 
to 
populated  areas 
reduce  the  costs  of 
deployment.  

Suburban

100%

Urban

Rural

20%

30%

40%

50%

60%

70%

80%

90%

10%

L

A

D

NL

0%

FIN

for 

B
Source: IDATE

Commission 
the 
public 

The 
acknowledges 
need 
intervention to accelerate coverage of under-served areas, but underlined the need to respect 
regulatory  principles  and  competition  law.  Public  intervention  may  complement  private 
investment  but  should  not  pre-empt  private  sector  initiatives  nor  distort  competition.  The 
guidelines  on  criteria  and  modalities  of  use  of  Structural  Funds  for  electronic 
communications11  published  by  the  Commission  in  2003  illustrate  how  to  strike  a  balance 
between  public  support  and  competition  requirements.  Their  application  is  relevant  to  any 
form of public funding.  

DK

UK

S

E

P

F

I

The  Communication  on  a  European  Initiative  for  Growth12  has  given  further  impetus  to  the 
extension  of  broadband  coverage.  It  announced  the  Digital  Divide  “Quick-start  project”  to 

11 
12 

Available at http://europa.eu.int/comm/regional_policy/sources/docoffic/working/sf2000_en.htm 
A  European  Initiative  for  Growth:  Investing  in  Networks  and  Knowledge  for  Growth  and  Jobs, 
COM(2003) 690 

11 

 
 
  
 
                                                 
accelerate provision of broadband access in under-served areas through a technology-neutral 
approach. R&D related to 3G mobile communications and beyond is being supported through 
the  launch  of  a  project  on  Mobile  Communications  and  Technologies.  Finally,  the  research 
network infrastructure project focuses on further upgrading the Géant network that currently 
connects universities, research and higher education centres in Europe.  

In conclusion: 

•  Member States had to present their national broadband strategies before the end of 2003. 
Those who have not yet done so should complete their national strategy and present it to 
the Commission without delay.  

•  The  Commission  will  publish  a  Communication  to  the  Council  and  the  European 
Parliament  on  those  national  broadband  strategies,  including  recommendations  on  their 
implementation in May 2004. 

•  Member States, in coordination with regions, should encourage digital-divide broadband 
quick-start  projects  in  the  context  of  the  mid-term  review  of  structural  funds  and  on  the 
basis  of  their  national  broadband  strategies,  with  emphasis  on  remote  and  rural  areas, 
including the outermost regions. 

•  Within the eEurope framework, the Commission will set up a Forum on the Digital Divide 
in  March  2004.  This  Forum  will  bring  together  all  stakeholders  in  the  area  of  the 
Information  Society  and  electronic  communications  to  analyse  how  to  bridge  the  digital 
divide. The Commission will report on the Forum’s outcome by mid-September 2004.13  

4.3. 

Stimulating demand 

While  broadband  is  already  available  to  the  majority  of  households  in  the  Union,  only  a 
fraction  of  them  has  chosen  to  subscribe.  Data  show  the  existence  of  a  significant  gap 
between availability and effective use of broadband infrastructure. Adoption not deployment 
is becoming the main issue for the development of the broadband market. 

Different factors might explain the gap between supply and demand. Consumers’ take up and 
acceptance  of  new  technologies  is  positively  related  to  ease  of  use.  Other  determinants  of 
consumers’  choice  are  prices  combined  with  the  availability  of  useful  innovative  advanced 
services.  

Empirical  evidence  demonstrates  large  differences  in  prices  and  speeds  between  the  Union 
and other regions. A recent OECD study14 shows that Korea and Japan offer the lowest prices 
and  highest  speeds.  Prices  in  the  Union  are  higher,  not  only  in  comparison  to  these  leading 
economies  but  also  to  North  America.  These  higher  prices  make  broadband  relatively  less 
attractive for consumers and businesses in the Union. 

Differences  in  prices  and  broadband  development  partly  reflect  varying  degrees  of 
competition.  In  the  Union,  high  broadband  penetration  is  found  in  Member  States  with  a 
relatively  important  degree  of  facility-based  competition.  The  Commission  has  stressed 
several times its conviction that facility-based competition will deliver benefits in terms of the 

13 

14 

See also the White Paper on Space: a new European frontier for an expanding Union. An Action Plan 
for implementing the European Space policy, COM(2003) 673. 
Benchmarking Broadband Prices in the OECD. 2003 (DSTI/ICCP/TISP(2003)8) 

12 

 
 
  
 
                                                 
price/performance  ratio  and  increased  diversity  of  choice  for  consumers.  Therefore  national 
regulatory  authorities  should  provide  incentives  for  competitors  to  seek  access  from  the 
incumbent in the shorter term, in particular in the market for wholesale broadband access, in a 
way that encourages competitors to build out their own infrastructure in the longer term.  

The  Commission  analysed  the  competitive  situation  of  the  broadband  market  in  the  2003 
Report  on  the  implementation  of  the  EU  electronic  communications  regulatory  package15. 
Although on average the market share of incumbents reduced during 2002, competition in the 
European broadband market remains weak. 

Prices of connections do not tell the whole story. Internet users will increasingly migrate to 
broadband if they can access innovative content, applications and services. Member States are 
promoting the development and use of online e-government, e-health and e-learning services 
as  part  of  their  national  strategies.  The  eEurope  2005  Action  Plan16  emphasises  the 
importance  of  stimulating  demand  to  enable  companies  and  institutions  to  use  ICTs  more 
effectively. It also supports demand-aggregation policies to ensure a critical mass of users in 
public administrations. 

Interactivity  offers  a  new  dimension  also  to  business  applications  and  consumer-oriented 
services. But as broadband opens the way to the development of new advanced applications 
and high-quality digital services, new issues are raised. 

A  Commission  workshop  in  July  2003  showed  that  operators,  Internet  service  providers, 
content  providers,  broadcasters  and  the  entertainment  industry  are  trying  to  adapt  their 
activities  through  new  forms  of  partnerships  crossing  the  traditional  boundaries.  These 
alliances aim to offer a more complete range of services while preserving access to users and 
ensuring  adequate  revenues.  However,  long-term  exclusive  contracts  may  impede  access  of 
service providers to premium content, reducing competition.  

The development of new business models will depend on finding solutions to issues such as: 
(i) convergence between broadcasting and broadband audio-visual services; (ii) security and 
trust  issues  arising  from  the  increased  vulnerability  of  networks  due  to  the  “always-on” 
feature  of  broadband;  (iii)  the  fostering  of  a  secure  micro-payment  environment;  (iv)  the 
enforcement  of  IPRs  for  protected  content  through  adequate  Digital  Rights  Management 
(DRM); (v) the required degree of interoperability.  

In particular: 

•  The  Commission  will  work  with  industry  to  address  the  issues  possibly  hampering  the 
development  of  new  business  models,  such  as  micro-payments,  security  and  trust,  and 
interoperability. This work will aim at facilitating the development of services whilst taking 
into account other primary interests such as financial stability and consumers’ confidence.    

•  The Commission will establish a high-level group with industry in March 2004 to address 

the issue of DRM systems.  

•  The  Commission  will  monitor  closely  the  acquisition  of  long-term  exclusive  licences  for 

premium content by dominant operators. 

15  
16 

COM(2003) 715, European electronic communications regulation and markets 2003.  
COM(2002) 263 

13 

 
 
  
 
                                                 
4.4 

Third generation mobile communications 

Growth in data services in fixed and wireless networks is a good basis for expecting a gradual 
but sustained transfer of large numbers of mobile subscribers to 3G. However, roll-out of 3G 
networks and launch of 3G services continues to face a series of obstacles. 

Specifically, diverging roll-out requirements between Member States have an impact in terms 
of  lost  synergies,  not  least  in  marketing  terms.  Similarly,  diverging  licence  procedures  and 
conditions  place  a  burden  on  operators  and  may  fragment  the  single  market.  Network 
infrastructure-sharing arrangements at European and national level are likely to have positive 
practical  effects  on  network  operators.  In  addition,  secondary  trading  of  spectrum,  as  now 
permitted under the new regulatory framework, will have a positive impact in those Member 
States that propose to implement it. 

These issues were highlighted in the Communication Road to the knowledge economy, which 
indicated  the  need  for  enhanced  coordination  of  network  roll-out;  the  need  for  guidance  in 
network  infrastructure  sharing,  which  the  Commission  gave  through  two  competition 
decisions  in  2003;  and  further  analysis  of  secondary  trading  issues  through  a  workshop 
organised in December 2003. 

The  new  regulatory  framework  should  enable  regulators,  on  the  basis  of  the  proportionality 
principle, to refocus regulation and withdraw it once effective competition is established. New 
and  emerging  markets  should  not  be  regulated  inappropriately.  As  regards  content,  demand 
for 3G services will depend to a large extent on the availability of attractive offerings (both in 
terms  of  services  and  prices)  and  on  improved  costumers’  choice.  The  Commission  will 
investigate  possible  restrictive  practices  as  regards  the  sale  of  sport  rights  to  3G  mobile 
operators. 

The Commission has set up a Mobile Communications & Technology Platform with the aim 
of  identifying  stakeholders’  views  on  short,  medium  and  long-term  key  challenges.  In  its 
report, the Platform calls on the Commission to coordinate action by all relevant players. The 
dialogue with industry has highlighted the following challenges:  

–  Member States need to facilitate the physical roll-out of 3G networks, in particular in the 
light  of  sometimes  heavy  deployment  and  coverage  obligations  in  licences.  As  regards 
rights  of  way,  there  is  lack  of  awareness  of  the  difficulties  in  obtaining  permissions  and 
poor  co-ordination  between  authorities  at  local  and  national  levels.  In  addition,  very 
stringent  planning  requirements  in  some  Member  States  are  hampering  roll-out.  The 
success  of  2G  (GSM)  largely  resulted  from  the  effective  inter-working  of  networks  and 
devices. Widespread take up of 3G services will also depend on interoperability at service 
and application levels. There is a need for industry and the relevant standardisation bodies 
such as the Third Generation Partnership Project to work more effectively with the support 
of the Open Mobile Alliance and the GSM association and help to achieve this objective. 
Open  specifications  and,  where  appropriate,  open  interface  standards  are  also  required. 
Regulatory 
the  potential  cost  of  resolving 
intervention 
incompatibilities would be prohibitive.  

justified  only  where 

is 

–  Research  at  European  level  has  played  a  major  part  in  developing  GSM  and  UMTS 
standards,  and  collaborative  research  will  play  an  important  role  in  the  future.  In  this 
context,  international  cooperation  in  research  needs  to  be  strengthened,  facilitating 
consensus  building  on  future  standards  and  providing  for  an  early  adoption  of  measures 

14 

 
 
  
 
that guarantee interoperability on a global scale. Greater openness to participation by third 
countries in European R&D programmes will bring benefits for European companies. 

–  There is also a need for industry to coordinate its efforts in the definition and collaboration 
of their research endeavours within the Union research programmes. Flexibility in research 
financing,  improved  research  structuring  and  coordination  of  actions  and  initiatives  are 
needed to achieve critical mass and optimise impact. 

–  Mobile business should be conducted in an environment based on security and trust. Spam 
is a growing problem and the theft of handsets must be tackled effectively. An appropriate 
m-payment environment is also essential to the development of new services. 

–  Access to spectrum is clearly very important for the provision of 3G services, and efficient 
mechanisms  for  managing  this  resource  are  indispensable.  While  there  are  currently 
disparate  views  in  the  industry  and  between  the  Member  States  on  the  way  in  which 
spectrum  should  be  managed,  the  potential  for  increased  spectrum  harmonisation  within 
the Union has been secured through the adoption of the Spectrum Decision17. Nevertheless, 
a  broad  reflection  process  on  the  means  to  access  spectrum  resources  for  wireless 
electronic  communications  would  be  beneficial.  In  this  context,  enhanced  coordinated 
action at European level is needed. 

–  Finally, the adoption of regulatory models that are in line with the European approach in 
third  country  jurisdictions  will  substantially  increase  the  opportunities  for  European 
operators  seeking  to  export  their  services.  Similarly,  open  international  standards, 
following the model of GSM and UMTS, will boost the export of equipment by European 
companies. 

In conclusion: 

•  Challenges identified by the Mobile Communications & Technology Platform cover a wide 
range of areas. To avoid uneven progress, the issues need to be tackled within an overall 
policy framework. The Commission will therefore address them in a Communication to be 
presented to the Council and the European Parliament in July 2004. It will contain specific 
recommendations  to  all  parties  involved  to  address  the  different  issues  identified  by  the 
Platform. 

•  The  success  of  2G  (GSM)  is  largely  attributed  to  the  interoperability  which  is  a  core 
component  of  the  entire  system.  Moving  to  3G  involves  a  new  dimension.  It  will  mean 
moving from voice exchange to data exchange, thus offering possibilities to deliver entirely 
new services and to work and process data jointly, to do so online and in real time from 
anywhere.  This  should  result  in  productivity  gains.  The  move  to  3G  is  hampered  by  the 
continued  lack  of  interoperability  at  the  level  of  platforms,  but  mostly  at  the  level  of 
services  and  applications  delivered  over  the  networks.  Work  on  interoperability  must  be 
accelerated fast. To do so, the Commission, through its R&D Framework programme, will 
bring  together  the  relevant  actors  (industry,  standardisation  bodies,  etc.)  to  establish  a 
roadmap of key areas where interoperability needs to be achieved as a matter of urgency. 

17 

OJ L108/1 dated 24 April 2002. 

15 

 
 
  
 
                                                 
•  The physical roll-out of mobile networks is also hampered by local, regional and national 
measures  relating  for  example  to  rights  of  way  and  planning  requirements.  The 
Commission  recalls  that  the  Seville  European  Council  in  June  2002  called  upon  all 
relevant  administrations  to  act  to  overcome  difficulties  encountered  in  the  physical 
development of networks. Despite this call, progress has been slow. 

5. 

CONCLUSIONS 

The electronic communication sector grew fast in the late nineties. In 2000, it faced a sharp 
downturn. After two years of consolidation, an improved economic outlook and evidence of 
demand  for  high-speed  services  offer  renewed  opportunities  for  the  sector  to  return  to  a 
sustainable growth path. 

Even  though  the  sector  has  suffered  a  slowdown  since  2000,  the  information  society  has 
continued  to  expand  through  continued  innovation,  increases  in  Internet  usage,  broadband 
connections,  mobile  services,  availability  and  use  of  e-government  and  e-business  services. 
This  long-term  trend  creates  a  potential  for  higher  productivity  gains  and  improved 
competitiveness.  The  Union  needs  to  promote  the  effective  use  of  ICTs  and  create  a 
favourable  and  competitive  environment  for  the  growth  of  the  electronic  communication 
sector to be sustained. 

Governments  can  help  in  various  ways.  They  can  increase  their  own  usage  of  ICTs  and 
broadband  applications,  they  can  aggregate  demand  and  facilitate  the  dialogue  between 
stakeholders and, where needed, can support the provision of services in under-served areas. 
These are the main issues that national strategies are expected to tackle, both for broadband 
and  3G.  The  Commission  will  report  on  these  strategies  to  the  Council  and  the  European 
Parliament  in  May  2004.  It  will  continue  working  with  stakeholders  in  areas  such  as  IPRs, 
Digital  Rights  Management,  trust  and  security  issues,  interoperability  and  standardisation, 
spectrum management and coverage of remote and rural areas. 

A competitive market is conducive to investment. Thus, implementation of the new regulatory 
framework  for  electronic  communications  needs  to  be  effective  and  consistent  across  the 
European  Union.  Unfortunately,  six  Member  States  have  not  yet  transposed  the  framework 
into national law. The new Member States should already take now all the steps necessary to 
ensure a timely implementation of the framework. 

The European Union must step up its efforts to encourage the use of ICTs. The eEurope 2005 
Action Plan is the instrument designed to achieve this objective. The eEurope 2005 Mid-Term 
Review,  which  will  be  available  to  the  European  Council  at  the  same  time  as  the  present 
Communication, sets out the key issues that will form the basis for a revised action plan for an 
enlarged European Union. It is important that the European Council acknowledges the role of 
ICTs in achieving the Lisbon goal and supports the eEurope mid-term review process.  

If  the  Union  is  to  maximise  the  impact  of  ICTs  as  the  engine  for  growth,  productivity  and 
jobs, it is essential to move forward on the different actions identified in this Communication. 
They  represent  individual  links  on  a  chain  that  can  pull  the  Union  closer  to  the  Lisbon 
strategy's  goals  of  sustainable  growth  and  jobs.  Success  requires  the  strengthening  of  the 
political  commitment  to  a  knowledge-based  economy  that  was  so  evident  in  March  2000 
when the Lisbon strategy was launched. It is therefore important for the European Council to 
give  a  clear  political  signal  by  taking  the  necessary  steps  to  foster  the  conditions  in  which 
Europe's information and communication technology industries can thrive. 

16