07 May 2008   |   Viewpoint

European ICT: innovation is the key

An exclusive focus on regulatory issues means we are ignoring a crucial longer-term question: the global competitiveness of the European ICT sector, says Martin Fransman.

Martin Fransman: Europe needs a new ICT ecosystem.

Public attention in Europe in the area of economic policy has focused largely on the financial credit squeeze, global warming, and energy. While concern with these issues is appropriate it is also the case that the European ICT (computers, telecommunications, the Internet and media) sector has not received the attention it deserves. This is short-sighted since the European ICT sector is the most important contributor to economic and social performance. It also makes a key contribution through innovation to environmental improvement.

For this reason the European Commission’s proposed Regulatory Framework for the sector is to be particularly welcomed since it creates an excellent opportunity for a broader discussion of the future of the European ICT sector. It is this discussion to which my book (The New ICT Ecosystem – Implications for Europe) contributes.

The EU’s Regulatory Framework

Currently the Council of the European Union and the European Parliament are debating the proposals put forward by the European Commission regarding the EU Regulatory Framework for electronic communications networks and services.

Among the issues being contested are whether a regulatory function is needed at the European, as opposed to the national, level; whether European authorities should have a veto over national regulatory decisions; whether national regulatory authorities should be able to impose “functional separation”; and whether European or national authorities should have control over spectrum.

The big omission

These issues are important and it is correct that they are being debated. However, the danger is that in focusing exclusively on them we are ignoring a crucial longer-term question: the global competitiveness of the European ICT sector. The problem is that however these issues are resolved the solutions will not solve the problem of Europe falling behind as a globally competitive provider of ICT goods and services.

The challenge to Europe from the US and Asia

In Europe the sector faces serious challenges from ICT providers in the US and Asia. Unless Europe can maintain a dynamic and internationally competitive ICT sector, its economic growth and social welfare will be fundamentally threatened.

In some key parts of the ICT ecosystem Europe has already fallen behind. US companies dominate the global provision of Internet content and applications (well-known examples including Google, Yahoo, eBay, Amazon, and Facebook). US and Asian companies dominate the areas of computer hardware and software as well as consumer electronics and semiconductors. In other areas, however, such as mobile equipment and services, Europe has considerable strengths.

The key role of innovation and related investment

The main argument of my book is that the only viable response that Europe can make to this challenge is to increase its ability to innovate and make the investments that successful innovation requires. Innovation – taking the form of new products, processes, forms of organisation and markets – is essential. The option of competing solely on price has been closed by China and India’s decisive entry into the global ICT market.

The new ICT innovation ecosystem

The main contribution of my book is the analysis of how innovation happens in what I call the New ICT Ecosystem. At the heart of the innovation process are symbiotic relationships between the four key groups of players in the ICT ecosystem – networked element providers, network operators, content & applications providers, and final consumers.

It is innovation together with the investment that it requires that can create the international competitiveness that Europe needs to remain a thriving part of the global economy. The key corporate players are not only European companies but also innovative firms from other parts of the world which contribute to the innovation and investment processes in Europe.

Although companies constitute the engine of the innovation system, their contributions are shaped by institutions that include financial institutions, regulatory bodies, competition authorities, universities, standardisation, and entrepreneurship.

The EU Regulatory Framework again

The EU Regulatory Framework currently being debated is to a significant extent dominated by the concern to produce competitive markets. Attention is also focused on the need for investment.

However, while this is important, far less attention is paid to the innovation process and to the facilitating conditions that are required to improve the performance of the innovation process in Europe. At times it seems that the assumption is being made that competitive markets are both necessary and sufficient to generate the innovation that will result in internationally competitive ICT goods and services in Europe. But as my book shows, while competition may in some cases be necessary to create such innovation, it is often not sufficient. Institutions, such as the ones mentioned play a key contributory role.

Furthermore – since innovation and investment are complementary activities – it is also necessary that competitive investment takes place in order to ensure that Europe’s ICT infrastructure keeps up with the global leaders. This is particularly important in areas such as ultra-broadband networks (using optical fibre) and broadband mobile.

The conclusion of my book is that it is crucial for us to develop a dynamic and internationally competitive New ICT ecosystem in Europe. Policy and regulatory measures in the fast-moving ICT environment must be thoroughly examined for their potential effects on the innovation and investment chain. To do this it is advisable that EU and national policy makers and regulators develop a joined-up, holistic conceptualisation of the ICT ecosystem as a whole. It is this ecosystem that will help to deliver the economic growth, social welfare, and environmental improvements that Europe needs in order to survive and prosper in our globalised world.

Martin Fransman is Professor of Economics and Founder-Director of the Institute for Japanese–European Technology Studies in the School of Business and Economics at the University of Edinburgh. He has just published The New ICT Ecosystem – Implications for Europe.

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