|Europe II 2009
|The EU innovation agenda and recovery package
|Director Government Relations
Katie Miller is the Director of Government Relations for Nortel in EMEA; her career in regulation and industrial policy covers both corporate and public sector perspectives. Ms Miller has previously held roles at Ofcom the UK regulator, RM plc and NatWest and has undertaken consultancy work for companies such as The Economist and Royal Mail. Ms Miller is a fellow of the RSA, The Royal Society for the Encouragement of Arts, Manufactures and Commerce, an associate of the Association of Project Managers, and of the Institute of Mathematics and its Applications. Katie Miller has an MSc in project management and a BSc in mathematics.
The EU’s Economic Recovery plan, will inject money into the economy to combat the global recession. Some €5 billion will go to trans-European infrastructure projects including broadband. Much of the spending will likely support the EU’s Lisbon goals and the EU Innovation Agenda, and go towards ICT development. This spending to promote technical innovation, coincides with the rollout of a new generation of high speed broadband technologies, both mobile and fixed, and will stimulate the offer of many new services.
At the end of November 2008, EU commission president, José Manuel Barroso, set out a Recovery Plan for the EU to address the economic crisis. He outlined how he hopes this package will inject purchasing power into the economy and address the EU’s long-term competitiveness in line with the Lisbon strategy for growth and jobs. Among the specific measures included in the announcement was €5 billion for trans-European energy and broadband infrastructure projects. With these new measures, could we be in line for growth in European ICT innovation? In contrast to regulatory interventions, industry is rarely shy when supporting new government investment, so it is no surprise the industry has responded positively to the proposals in the Recovery Plan. Mark MacGann, Director General of the body representing the telecoms, IT and consumer electronics industries in the European Union, EICTA, said, “We are glad that the Commission has understood that Internet and the digital revolution need real political commitment and fiscal incentives to ensure a rapid return to growth and prosperity in Europe.” It is hoped that the billions of Euros that Mr Barroso has committed to broadband investment in the Recovery Package will support the Lisbon goals and the EU Innovation Agenda, for advancing developments in ICT, in particular. Beyond the stereotypical support for more money, it seems on this occasion industry may concur with the policy objectives; there is optimism that the money will stimulate innovation in the EU. The highest speed broadband yet Timing is everything. Clearly, the imperative to invest has been set by the economic collapse, but a principal reason this public investment is likely to promote technical innovation, is that we are coincidentally on the cusp of a new generation in broadband technologies, both mobile and fixed. In February 2009, in Barcelona at the GSMA Mobile World Congress we saw public demonstrations of live mobile high definition international video calls using LTE technologies, giving weight to the predictions that leading operators will begin building new networks this year, and more notably will be offering commercial 4G mobile broadband services from 2010. In fixed networks, we have seen rapid take up of 40G technologies to address network congestion and lots of interest in the 100G technologies expected later this year. In the fixed access network, at least ten operators worldwide are trialling the latest wave-splitting technologies which promise to offer more than 1Gb of symmetric broadband. This symmetric bandwidth is valuable for uploading video to social networking sites and is important for business users as it offers the same high bandwidth for both upload and download. Operators are also looking seriously at applying wave-division technology in access networks because it offers a lower total cost of ownership compared to today’s fibre broadband equipment. It enables operators to build just one network to offer the broadband bandwidth needed by businesses located in residential areas and in areas where duct space is limited. Investing for innovation This public investment will mean that industry can leverage the R&D spending in a way that would not be possible if the money just bought more of a mature technology. By investing now, the money will stimulate both innovation and price competition, not just lower prices. By investing now in innovative technologies, public money can generate demand and demonstrate a good business case. This, in turn, will reduce the risk for commercial investment in innovative technologies, and reducing investment risk is critical in current capital markets. The funding, together with imminent spectrum releases, will likely enable European businesses and consumers to access these technologies at the head of the curve, keeping pace with other leading countries, such as Japan. Keeping pace is important because broadband is an infrastructure like roads and airports which influences foreign investment decisions and empowers regional economies. For example, fast upstream and downstream broadband enables businesses with branch networks, supplier networks or businesses who want to encourage home working to improve productivity and reduce costs. Good, symmetric broadband connections enable suppliers to do more for their customers remotely. They enable regional employees (perhaps in lower wage areas) to interact with company systems and colleagues as well as those who work in metropolitan head offices. Good symmetric broadband will make it possible for us to easily share the videos we capture of those exciting moments on new HD video cameras with our family and friends wherever they are. By contrast, the main argument levelled against this investment commitment is that it is simply not enough; it is a drop in the ocean – or more appropriately – like comparing 512Kb dial-up speeds to 1Gb broadband. McKinsey analysis suggests over €300 billion will be needed to provide fibre-based broadband access across the EU. However, by targeting public investment, it is likely the relatively small investment will unlock more commercial investment because competition rules suggest public investment will be used where commercial investment is uneconomic. Therefore, public broadband investment will bring broadband to a greater proportion of the business and residential population, which in effect increases the overall market for services delivered over broadband networks. In turn, new content services and applications become viable, and they increase the value placed on broadband by users, giving them a reason to pay a premium for better broadband. If publicly funded broadband demonstrates that business and residential consumers will pay for faster broadband, then there will be a commercial business case to bring broadband to more areas. In this case, the public funding may lead to many times more commercial investment. Driving broadband demand Although investment in next generation broadband networks will likely stimulate innovation, it would be wrong to conclude that associated new revenue streams are the main incentives for commercial investment in superfast broadband. There are too many types of risk in this investment already. The stereotypical investment strategy of multinational businesses is to manage risk by either investing in new technologies in mature markets, or bringing mature technologies into new markets. When it comes to broadband, few countries have more than 30 per cent take-up of broadband in residential markets, suggesting demand is not mature. At the same time, the economic climate brings a degree of risk, and business cases are in flux. Consumers are getting used to paying for data instead of calls. We are beginning to see competition between fixed and mobile broadband networks with reports that 50 per cent of consumers in the UK city of Manchester have swapped their fixed line for a dongle. There is also significant regulatory debate on the future of call termination revenues and universal service obligations. All of this means there are already more types of risk in a network providers’ business plan than would usually be entertained. So the commercial drivers for investing in next generation networks seem unlikely to be the opportunity to sell new services to new customers. Still, there are three reasons that do seem to be driving operators’ decisions to upgrade – competition, capacity and cost-saving. Telecoms markets are renowned for their ‘stickiness’ – the propensity of customers to stick with their provider. This means that there is enormous value in being first to market with innovations. So the behaviour of competitors is a significant driver when it comes to investing in innovation. There is a game to see who blinks first; no one wants to be last to market. Capacity constraints are also real drivers since recent innovations to take-off, such as the mobile broadband dongle and the BBC iPlayer, have caused enormous increases in the volume of data being sent over mobile and fixed networks. iPhone users typically use 20 times more capacity than the average mobile phone user. This is putting a strain on current networks and, accordingly, stimulates interest in next generation technologies that offer more capacity and use spectrum more efficiently. Next generation broadband technologies also offer significant cost-savings, the importance of which is growing as customers start to tighten their belts. The next generation technologies are all-IP, and this simplicity means technologies are more robust and more maintenance can be handled remotely reducing the cost of having engineers on the road. Improved broadband access However, even if innovation and the associated new revenue streams will not drive commercial investment in broadband, they will inevitably be a consequence. The potential for innovation generated by next generation networks derives from their simplicity. The technology does not dictate as many service boundaries compared to today’s networks, which means it will be much easier to maximise the contribution of the network to services and applications. So, in addition to the timing being right, investment in next generation broadband is likely to stimulate innovation, because their simplicity enables network operators to play a greater role in new services and applications. This simplicity means it will become more practical and affordable to extend enterprise applications, such as unified communications, outside of the enterprise. It means home workers, or remote branches, will get the same experience as head office staff. Not only does this suggest businesses will improve their relationships with remote employees or suppliers, but they might also choose to outsource more of their IT costs to network operators, and save even more. This is just one example where network operators may be able to assume responsibility for a process more efficiently or effectively than might be achieved by businesses alone. Networks have valuable information about users such as their location, their identity and the characteristics of the device they are using to connect. The same simplicity might lead to operators taking responsibility for privacy or security, for example, for their business customers by opening the interface of enterprise applications to the network. As next generation broadband rolls out to more areas, we may see network operators offering new, innovative services to business customers. The timing is right for government investment in broadband, and though network operators are faced with an enormous degree of risk today, this government intervention in the market improves the prospects for innovation.