The road towards ‘smart Europe’ – Frost & Sullivan

An intelligent and innovative Europe cannot be built without its backbone: next generation broadband access. European policymakers at all levels – regions, states and the EU as a whole – are conscious of this. This awareness has been transformed in various political initiatives, from the EU Digital Agenda to regional initiatives.

However, there is a substantial gap between Europe and other developed economies, such as South Korea and Japan, in terms of the pervasiveness of next generation broadband access. A renewed effort and commitment is required to bridge the divide, but most importantly, to also stimulate economic growth through broadband infrastructures and services.

There are clear challenges to face – deployment costs, demand uncertainty, and regulatory inefficiencies – but the difficult time that Europe is currently facing requires an exceptional effort in order to drive growth. This effort calls for a more synergic collaboration between the private sector and the public sector in order to accelerate the penetration of next generation broadband access, and transform the urban and rural areas of Europe into a single, unified smart continent.

Next generation broadband- Europe

24 April 2012

Creating a smart Europe through next generation broadband access will alleviate economic pressures and make the EU globally competitive, argues Frost & Sullivan’s Saverio Romeo

Broadband will alleviate economic pressures

Throughout 2011, the debate on information and communication technologies (ICTs) policy was particularly lively. Professionals, experts, academics and policymakers have seen ICT as a necessary tool to mitigate the impact of challenging economic conditions. The argument was that ICT can enable economic growth, better provision of public services, and an improved quality of life for citizens.

From this perspective, we have seen increasing attention given to concepts such as smart transportation, smart healthcare and smart cities. These concepts revolve around the aim of making the environments in which we live and work more intelligent. Among them, the notion of the ‘smart city’ was extremely popular during 2011. This was partly driven by numerous analyst forecasts that suggested that the majority of the world’s population will live in cities or large urban conglomerates.

These ‘megacities’ require intelligent infrastructure and services – and therefore will become smart because they are always connected, sensed and analysed in order to optimise services, improve operational performance and enable innovation, which in turn enables economic growth and job creation.1

A driver of ‘smartness’ and economic growth
Next generation broadband access is the backbone of the envisaged ‘smart’ world. As a result, the attention on deployment of next generation broadband access in Europe continues to be very high. This is clearly highlighted by the political initiatives introduced by various European public sector organisations at different levels of public administration – all of which aim to transform Europe into the fastest connected region in the world.

This political vision is also strongly supported by the argument that next generation broadband access has a clear economic impact, and the academic and business literature that sustains this argument is vast.2 For example, Koutroumpis shows that for each 1% increase in broadband penetration, GDP increases by 0.025%.3 On behalf of the government’s broadband council, the Swedish research centre for electronics and communications, Acreo, recently ran research on the socioeconomic impact of Fibre to the Home (FTTH) investment in Sweden. The study demonstrates that the investment will generate economic gain in less than three and a half years. Marco Forzati, Senior Researcher at Acreo, emphasised the positive results, saying: “The actual return is expected to be greater than calculated in the study when indirect and induced economic effects are likely to increase over time also due to effects not currently quantifiable”.4

Next generation broadband access in Europe
Sweden represents an advanced case in terms of broadband penetration and, particularly, next generation broadband access in Europe. At the end of June 2011, fixed broadband penetration in Sweden was 31.9%, 28% of fixed broadband subscriptions were based on fibre optics with fibre optic network coverage reaching 10%, and mobile broadband penetration was 93.6%. Combining all of this data, Sweden is the leading EU state regarding the adoption of broadband connections.

In terms of the deployment of next generation broadband access through FTTH, Europe shows a clear lag in comparison to other economies. For example, Japan is the most advanced country in terms of next generation broadband access deployment – with 61% of connections through fibre optics, while FTTH network coverage reaches 86.5%. South Korea follows with 57% of FTTH connections out of total broadband connections and 67% coverage. The top adopter of FTTH in the EU, meanwhile, is the Slovak Republic, with such connections accounting for 30% of overall broadband and coverage reaching 20%.

Key economies in the EU are therefore considerably behind Japan and other leading countries – for example, in Germany only 0.52% of broadband connections are FTTH; in France only 0.71% are; and in Italy only 2% are. Japan and South Korea also lead in the adoption of mobile and wireless broadband with a penetration of 80% and 99.3%, respectively.

However, in this case the gap is less sharp than the one illustrated in that for fibre optics. In the EU, the Scandinavian region performs extremely well, as in the example of Sweden. However, key European economies are far from the astonishing Asian numbers: 44.4% in the UK, 42.4% in Italy, 38.2% in France and 29.2% in Germany.5

Good intentions and serious challenges
‘Smart Europe’ is far from a reality. Certainly the Digital Agenda, which has been highly emphasised by EU Commissioner Neelie Kroes, has increased the political attention on the issue. This has, in turn, driven the design of several initiatives and infrastructure roll-out projects all over the EU – for example, Scotland’s Digital Future, Information Society 2010-2013, the National Strategy for the Broadband Access in the Slovak Republic, the Lombardy Region Plan for Regional Broadband, Somerset e-Strategy, and Superfast Cornwall.

Despite the vast spectrum of initiatives, the road towards a ‘smart Europe’ is overshadowed by some challenges, particularly those that revolve around the question of how next generation access deployment will be funded. Market players struggle to justify the business case for the infrastructure deployment, as the costs are high. The large majority of costs – from 65% to 75% out of the total cost of deployment – are related to civil work. In the UK, civil works for nationwide fibre optic network deployment is anticipated to cost between €20-30bn. These high deployment costs are not counterbalanced by business models that enable clear returns. It is difficult to predict demand for products and services that either do not exist or are embryonic. Therefore, designing successful revenue models is a real challenge for telecoms providers. In addition, regulations can affect operators’ ability to generate revenues. For example, regulations on advertising, interconnection tariffs and wholesale agreements can all have an impact on revenues from next generation broadband access. 6

Among all of these issues, stimulating investment is probably the most important one to face. The economic recession has added uncertainty to the availability of funds for next generation broadband access. In the current socioeconomic context, the resurgence of private-public partnerships can be a valuable route to drive next generation infrastructure deployments. They can also avoid a divided ‘smart Europe’. In highly urbanised areas, these challenges can be more easily faced due to higher levels of certainty regarding demand; while in peripheral and rural areas, they are exacerbated by a lack of high demand. As a result, telecoms providers are already postponing their coverage strategy for rural areas.

A ‘smart Europe’ at two speeds should be avoided as it will exacerbate the economic divides that already exist within the continent. Next-generation broadband access and ‘smart Europe’ should be opportunities for stimulating growth in geographic areas that are already struggling from a socioeconomic perspective. Exploring alternatives (ie satellite, WiMAX, PLC) to fibre optics should be considered.

The road towards ‘smart Europe’
An intelligent and innovative Europe cannot be built without its backbone: next generation broadband access. European policymakers at all levels – regions, states and the EU as a whole – are conscious of this. This awareness has been transformed in various political initiatives, from the EU Digital Agenda to regional initiatives.

However, there is a substantial gap between Europe and other developed economies, such as South Korea and Japan, in terms of the pervasiveness of next generation broadband access. A renewed effort and commitment is required to bridge the divide, but most importantly, to also stimulate economic growth through broadband infrastructures and services.

There are clear challenges to face – deployment costs, demand uncertainty, and regulatory inefficiencies – but the difficult time that Europe is currently facing requires an exceptional effort in order to drive growth. This effort calls for a more synergic collaboration between the private sector and the public sector in order to accelerate the penetration of next generation broadband access, and transform the urban and rural areas of Europe into a single, unified smart continent.

1Frost & Sullivan Research (2010), Megatrends 2020
2J Alleman, P Rappoport (2007), The Future of Communications in Next Generation Networks: The Unsustainability of Access Competition. International Telecommunications Union (ITU); M Cave, L Prosperetti, and C Doyle, (2006), Where are we going? Technologies, markets and long-range public policy issues in European communications. Information Economics & Policy, 18(3), 242-255; P Koutroumpis, (2009), The Economic Impact of Broadband on Growth: A Simultaneous Approach. Telecommunications Policy, 33, 471-485. L Waverman, (2007), Benefiting from Convergence: Access, mobility and ubiquity. A discussion paper for the Canada Roundtable on the Future of the Internet Economy, Ottawa
3Page 447 in P Koutroumpis, (2009), The Economic Impact of Broadband on Growth: A Simultaneous Approach, Telecommunications Policy, 33, 471-485
4Acreo and Bredbandsforum (2011), Pre-study on the effect of FTTH Investment in Sweden, http://acreo.se/en/News/News-Archive/2011-05—/Fiber—-a-good-investment-for-society
5Data based on Frost & Sullivan Broadband Research and OECD Broadband Portal
6T Ragoobar, J Whalley, D Harle (2011), Public and private intervention for next-generation access deployment: possibilities for three European countries. Telecommunications Policy, 35, 827-841

Advertisements

One response to “The road towards ‘smart Europe’ – Frost & Sullivan

  1. http://daa.ec.europa.eu/inspiring_videos/display/26379 one could always sponsor a duct, and help one rural community dig for victory?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s