The Commission must unlock private investment to deliver next generation internet access across the EU

For the consumer and businesses in our scenarios to be able to experience the benefits of a digital single market, the critical thing to get right is facilitating the roll-out of reliable high speed internet connections across Europe. Digital infrastructure is fast becoming as important to businesses and consumers as electricity in the walls and water coming out of the tap; any single market strategy will need to prioritise it as an enabler for a truly digital Europe.

The potential of digital communications for businesses, means that investment in digital communications infrastructure has a direct link to increased growth and productivity, in turn benefiting citizens across the EU. According to the European Commission, connecting 10% more households to high-speed broadband could generate up to 1.5% GDP growth and create 20 million more jobs by 2020, while the OECD says that 10% increase in broadband take-up in any year results in labour productivity growth of 1.5% over the following five years.

A lot of progress has been made in rolling out high speed and superfast services, and this is being felt at the local, company and consumer level as a result of considerable funding allocated to connectivity projects. For example, roll-out of superfast services in Cornwall and the Isles of Scilly has received €55.1million funding from the EU, with private investment matching the rest.

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Roll-out of superfast services in Cornwall and the Isles of Scilly has received €55.1million funding from the EU

When completed in 2015, this will make Cornwall and the Isles of Scilly one of the best connected parts of the world. Indeed, across the EU, the availability of next generation access is growing quickly with 62% EU superfast coverage at the end of 2013, up from 54% the year before [1] and 4G availability up from 27% to 59% putting Europe in a good position globally.

However, despite this rapid progress, rural coverage remains an EU-wide challenge with only 89.8% of homes in rural areas with access to fixed coverage, and 18.1% to next generation access. Also, whilst 4G availability is up from 27% to 59% from 2012 to 2013, its availability is still significantly less than 3G. Given the current political and economic climate in Europe, where budgets have been stretched in recent years, boosting roll-out of next generation and 4G technology can only be achieved with substantial private investment.

There are often obstacles to creating a pro-investment business environment at member state level regarding planning regulations and regulatory regimes, but overall two challenges exist at the European level, that should be addressed by a digital single market.

Co-ordinate spectrum timetable to improve investment certainty

Firstly, the process for allocation of spectrum and frameworks for wholesale access to incumbent fixed networks is fragmented. This means that business confidence to invest is low; responsible businesses need to know when and how they are going to spend their money and not being able to plan properly is a disincentive for operators seeking access to existing mobile infrastructure in other member states.

Whilst member states should continue to own and manage the revenues from spectrum auctions, co-ordinating the timetable of when these auctions take place will inject some more certainty into the investment planning cycle. This in turn would promote more cross border service provision, in turn adding consumer choice and stimulating competition to improve coverage by innovative means and new technologies.

Refocus EU grants & funds to solve rural coverage gaps

Secondly, 'take up' of broadband products and services is likely to be lower in rural areas and indeed some member states more than others, making it difficult to justify extra investment. According to Eurostat there is an overall 76% take-up rate of fixed broadband which, whilst still increasing, is doing so at a low growth rate.

Overall, EU take-up is higher than the rest of the OECD (27% take up) and the same as the US, but given the variance across member states, and weaker penetration in some Eastern countries and others like Italy and Greece, there will be even less of an incentive for telecommunications operators to invest if they cannot guarantee a return. Making money from investments of this nature is the only way for businesses to guarantee continued and on-going investment as technology improves and develops, but if they are unable to do so rural coverage will continue to lag behind.

This means that as urban and semi-urban areas continue to develop digitally and thrive economically by selling, marketing and interacting with customers' online, rural farms and businesses will be unable to move forward with the rest. Better utilisation of existing grants and funds could help to stimulate further investment where loans cannot.

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Recommendations

  • Improve investment planning by co-ordinating the spectrum allocation timetable, giving the opportunity to bid for spectrum across borders so that businesses can better plan their investment cycles and choices to invest in other member states.
  • Move toward cross border equivalent access to existing infrastructure, adopting competitive models of access to wholesale copper and fibre networks to boost expansion into new markets, providing more product choice for consumers, and more sources of private investment once in-country.
  • Make better use of EU funding to stimulate rural investment, such as Common Agricultural Policy (CAP) funds to boost coverage in rural areas.

With more of us online and using on-the-go devices to consume services and products, how will we ensure customer satisfaction at the same time as promoting re-investment in brand new music, tv, film and books? Check out chapter three to find out.

References

[1] Digital Agenda Scorecard 2014