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ICT in European Public Sector Beats
Creating a Smart Europe through Next-generation Broadband Access
By Saverio Romeo – “ICT in European Public Sector” Research Programme Manager

Towards a Smart World
Throughout 2011, the debate on information and communication technologies (ICT) policy has been particularly lively. Professionals, experts, academics, and policy makers have seen ICT as a necessary tool to mitigate against the impact of challenging economic conditions. The argument has been that ICT can enable economic growth, a better provision of public services, and a better 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 contexts in which we live and work more intelligent. Among these concepts, the one of the “smart city” had been extremely popular during 2011. This is partly driven by numerous analysts’ forecasts that suggest most of the world’s population will live in cities or large urban conglomerates. These “megacities” require intelligent infrastructure and services. Therefore, they become smart because they are always connected, sensed, and analyzed to optimize services, improve operational performance, and enable innovation, which in turn enables economic growth and job creation.1

Next-generation Broadband Access Drives “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 organizations 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. The academic and business literature that sustains this argument is vast.2 For example, Koutroumpis shows that for each 1 percent
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Frost & Sullivan Research. (2010). Megatrends 2020. Alleman, J., Rappoport, P. (2007). The Future of Communications in Next Generation Networks: The Unsustainability of Access Competition.

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International Telecommunications Union (ITU) Cave, M., Prosperetti, L., & Doyle, C. 2006. Where are we going? Technologies, markets and long-range public policy issues in European communications. Information Economics & Policy, 18(3), 242-255 Koutroumpis, P. 2009 The Economic Impact of Broadband on Growth: A Simultaneous Approach. Telecommunications Policy, 33, 471-485. Waverman, L. (2007). Benefiting from Convergence: Access, mobility and ubiquity. A discussion paper for the Canada Roundtable on the Future of the Internet Economy. Ottawa

Frost & Sullivan. 2012. Creating a Smart Europe through Next-Generation Broadband Access.

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increase in broadband penetration, gross domestic product (GDP) increases by 0.025 percent.3 Recently, the Swedish research centre for electronics and communications, Acreo, on behalf of Bredbandsforum (the Swedish government’s Broadband Council), ran research on the socioeconomic impact of fiber-tothe-home (FTTH) investment in Sweden. The study demonstrates the investment will generate economic gain in less than 3.5 years. Marco Forzati, senior researcher at Acreo, emphasizes 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

The Status of Next-generation Broadband Access in Europe
In Europe, Sweden represents an advanced case in terms of broadband penetration and, particularly, next-generation broadband access. At the end of June 2011, fixed broadband penetration in Sweden was 31.9 percent. Among fixed broadband subscriptions, 28 percent were based on fiber optics with fiber-optic network coverage reaching 10 percent. Mobile broadband penetration was 93.6 percent. Combining all of this data, Sweden is the leading European Union (EU) state regarding adoption of broadband connections. In terms of deployment of next-generation broadband access through FTTH, Europe shows a clear lag compared to other economies. For example, Japan is the most advanced country in terms of next-generation broadband access deployment. Most broadband connections in Japan (61 percent) are through fiber optics, while FTTH network coverage in Japan reaches 86.5 percent. South Korea follows with 57 percent of FTTH connections out of total broadband connections and 67 percent coverage. The top adopter of FTTH in the EU is the Slovak Republic, with FTTH connections accounting for 30 percent of overall broadband and coverage reaching 20 percent. Key economies in the EU are considerably behind Japan and other leading broadband economies: in Germany only 0.52 percent of broadband connections are FTTH; in France only 0.71 percent; and in Italy only 2 percent. Japan and South Korea also lead in the adoption of mobile and wireless broadband with a penetration of 80 percent and 99.3 percent, respectively. However, in this case the gap is less sharp than the one illustrated in the case of fiber optics. In the EU, the Scandinavian region performs extremely well as shown previously for Sweden. However, key European economies are far from the astonishing Asian numbers: 44.4 percent in the United Kingdom, 42.4 percent in Italy, 38.2 percent in France, and 29.2 percent in Germany.5

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Page 447 in Koutroumpis, P. 2009 The Economic Impact of Broadband on Growth: A Simultaneous Approach. Telecommunications Policy,
Acreo and Bredbandsforum. (2011). Pre-study on the effect of FTTH Investment in Sweden. http://acreo.se/en/News/News-Archive/2011-05-

33, 471-485
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-/Fiber---a-good-investment-for-society/
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Data based on Frost & Sullivan Broadband Research and OECD Broadband Portal

Frost & Sullivan. 2012. Creating a Smart Europe through Next-Generation Broadband Access.

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“Smart Europe”—Between Good Intentions and Serious Challenges
“Smart Europe” is far from a reality. Certainly, the Digital Agenda, highly emphasized 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 rollout projects all over the EU: Scotland’s Digital Future, Extremadura Regional Strategy Plan for Information Society, National Strategy for the Broadband Access in the Slovak Republic, Lombardy Region Plan for Regional Broadband, Somerset eStrategy, and Superfast Cornwall, just to mention some examples. Despite the vast spectrum of initiatives, the road toward 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 infrastructure deployment. The costs are high. Most costs are related to civil work: from 65 percent to 75 percent out of the total cost of deployment. In the United Kingdom, civil works for nationwide fiber-optic network deployment is anticipated to cost between €20 billion and €30 billion. These high deployment costs are not counterbalanced by business models that enable clear returns. Predicting demand for products and services that do not exist or are embryonic is difficult. Therefore, designing successful revenue models is a real challenge for telecom providers. Regulation can affect operators’ ability to generate revenue. For example, regulation on advertising, interconnection tariffs, and wholesale agreements can all have an impact on revenue from next-generation broadband access.6 Deployment costs and demand uncertainty can hamper the rollout of next-generation access broadband networks. Regulation can exacerbate these challenges. Among these issues, stimulating investment is probably the most important to face. The global 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. These partnerships can also avoid a divided “smart Europe”. In highly urbanized areas, the challenges discussed previously can be more easily faced due to higher levels of certainty regarding demand. In peripheral and rural areas, the challenges are exacerbated by a lack of high demand. As a result, telecom providers are already postponing their coverage strategy for rural areas. A “smart Europe” at two speeds should be avoided and not exacerbate economic divides in the continent. Nextgeneration broadband access and “smart Europe” should be opportunities for stimulating growth in geographic areas that are struggling from a socioeconomic perspective. Exploring alternatives (i.e., satellite, WiMAX, PLC) to fiber 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 policy makers at all levels—regions, states, and the EU—are aware of this. This awareness has been transformed into various political initiatives—from the EU Digital Agenda to
Ragoobar, T., Whalley, J., Harle, D. 2011. Public and private intervention for next-generation access deployment: Possibilities for three European countries. Telecommunications Policy, 35, 827-841
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Frost & Sullivan. 2012. Creating a Smart Europe through Next-Generation Broadband Access.

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regional initiatives. However, a substantial gap exists 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 stimulate economic growth through broadband infrastructures and services. Clear challenges need to be faced— deployment costs, demand uncertainty, and regulatory inefficiencies—but the difficult time Europe is facing requires an exceptional effort to drive growth. This effort calls for a more synergic collaboration between the private and public sectors to accelerate the penetration of next-generation broadband access and transform the urban and rural areas of Europe into a single unified “smart” continent.

Frost & Sullivan. 2012. Creating a Smart Europe through Next-Generation Broadband Access.

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