Table of contents

The 1996 FAIR Report emphasised two major concerns about European ICT developments and the drive towards the Information Society: Incumbent-leadership could lead to slower innovation in services in Europe than in the United States, while faster development of new applications in Europe (the WEB economy) under the leadership of Insurgents could be captured by United States firms that have established a leading position that will be difficult to be overcome. The report expressed the need for a Virtual Community Renaissance, a scenario which could reduce disparities in infrastructure and service access and stimulate wide use of advanced communication technologies and services by small and medium-sized enterprises (SMEs) and residential users.

Along the same lines, the European Commission’s High Level Experts Group said recently that "the opportunities for higher economic and productivity growth crucially depend on the convergence between the technological, economic and social dimensions of the Information Society". This means that the development of the technological infrastructure for the European Information Society will be successful only if consumers and businesses are willing to integrate the new technologies and services within their everyday lives. The infrastructure must be commercially and technologically viable, but it must also be accountable to social and economic needs and aspirations.

The central concern of the 1997 FAIR Report is that the pace of ICT technical innovation in the supply structure and the implementation of a regulatory framework moving towards increased competition and liberalisation are proceeding more rapidly than other necessary social and economic changes.

The way forward to the European Information Society involves the transformation of the socio-economic system and the evolution of social and economic processes at the societal, firm and organisational, and individual levels. These processes are interlocked in an interdependent system where the impact of technical innovation is only one of several crucial components.

In Europe there are elements of structural rigidity in the macro-economic and institutional systems and these are constraining the ability to incorporate and exploit innovations in ICTs. At the firm and individual levels, the still limited penetration of ICTs means that smaller companies and individuals are at an early phase on the learning curve that ultimately will enable them to use the new services effectively.

At the same time, the diffusion of ICTs is a cumulative process which is putting increasing pressure on the barriers to change. Awareness of the potential socio-economic benefits and pitfalls of the ‘networked society’ has improved substantially over the past year thanks to the success of the Internet. The evidence of the socio-economic impacts of advanced communication adoption continues to be uneven and partial across Europe.

This Report shows that there are some pioneering companies or sectors, and that some social groups and local communities are very involved in experimentation. However, there are others who are at risk of being left behind. This is the reason that the way forward to the European Information Society is at a crossroads.

The next two or three years will be crucial for Europe. The building blocks of the new information infrastructures will be put in place and this could provide an opportunity for the wide availability and greater accessibility of new services creating a favourable environment for people to sample and exploit the innovations in ICTs.

As the pace of innovation in media, information and communication markets has increased over the past year, an unprecedented number of European consumers, public organisations and businesses (large and small) have had a chance to experience new ways of working, having fun and communicating on-line, and to anticipate some of the features of the emerging Information Society.

The main drivers of this transformation have been the Internet and World Wide Web phenomena. The Internet is estimated to have reached 18 million users in 1996 in Western Europe, including subscribers and their family members accessing on-line services such as CompuServe, employees accessing the Internet through company systems, students and university personnel through university systems, plus a large number of occasional users. By creating a platform for multimedia services, the Internet is accelerating the formerly slow progress of convergence between information technology, telecommunication and media markets. It is also profoundly affecting the competitive strategies of suppliers. By testing commercial services in real markets the Internet experience is providing valuable insights into emerging trends in demands.

The take-off of the European consumer market for new interactive multimedia and communication services is a key condition to stimulate the virtuous circle of economic growth that could characterise the emerging European Information Society. The European consumer market is at a very early stage of development, but there are signs of accelerating growth.

• Digital satellite TV and digital terrestrial TV (to be launched soon in the United Kingdom, Spain and the Scandinavian countries) are multiplying the offers of pay-TV and pay-per-view channels. The number of available cable and satellite channels is doubling every three years and is likely to be over 500 by the year 2000. Penetration of cable and satellite TV is forecast to reach 34% and 20% of European households, respectively, by the year 2000.

• Early experiences (such as the successful launch of Canalsatellite in France) show that combined packages of well-targeted ‘bouquets’ of thematic channels plus access to the Internet and the World Wide Web and, possibly, cheaper voice telephony service are needed to attract customers. The potential of Internet broadcasting (supported by the new Webcasting software making it easier to find desired content) is exciting all media operators. The TV industry growth is also fuelling the interactive service market’s development.

• Penetration of PCs in the home, nearly all of which are equipped with CD-ROMs and modems, is steadily increasing and is expected to reach 40% of households in 2000 providing the platform for Internet growth. Interaction between CD-ROMs and networked distribution of information suggests that they will only compete directly in limited market niches.

• Internet development in the residential market is faster than expected and reducing the gap with the United States which is still large. By 2000, the current 4 to 5 million Internet residential users in Europe are estimated to reach between 15 million and 24 million. Growth will depend on the rate of reduction of Internet access and usage tariffs (currently higher in Europe than in North America), the increase of European content on the World Wide Web, and the availability of suitable communication access technologies.

Today the typical Internet user is generally male, between 18 and 35 years old, with a medium to high income and good computer know-how, but the number of women and older users is steadily increasing. In the medium term the market will be divided between high volume users for whom interactive services are an integral part of their every day lives (participating for example in the on-line virtual communities that are starting to emerge in Germany and Scandinavia), and casual users who will use interactive services for a more passive entertainment experience and as an extension of watching broadcast television. OVUM estimates that casual users will enter the market by 1998. By the turn of the century they will be the majority. Casual users are a natural target for the newly launched Web-TV, a television equipped with PC capabilities and Internet software.

The availability of high-speed network services for businesses improved over the past year with the launch by all major European telecommunication operators of commercial ATM-based services aimed at large companies in the main cities. Many large corporations started building corporate networks on ATM technology. The diffusion of high-speed LANs is driving demand for high-speed Wide Area Networks (WANs). Technical integration between next generation

LANs and the telecommunication infrastructure will be vitally important to the growth of demand. However the prospects for end-to-end ATM network connectivity are weak. At the LAN level, customers are putting off decisions to install ATM and turning increasingly to Fast Ethernet even though its top speed of 100 Mbit/s is well below ATM’s 155 Mbit/s and its multimedia performance is shaky. Market analysts suggest that from 1997 to 2000 the sales of high speed LANs will grow dramatically and that ATM will not significantly impact on LAN hub sales over the next five years. This is because of incomplete standards, relatively high prices, limited applications support and the immaturity of the technology.

Electronic commerce is no longer narrowly confined to on-line selling of goods and services, but is expanding as a key opportunity for European SMEs to join in the Information Society innovation wave. Now that they are no longer priced out of the market there is a new potential to reach new markets and improve their competitiveness. The European Commission’s ESPRIT programme includes business activities such as the advertising and promotion of goods and services, communication between traders, the acquisition of market intelligence from consumers, the delivery of goods, and the provision of pre- and post-sales support. The Internet, by replacing private, proprietary and expensive networking environments with a single, universally endorsed public network protocol, has provided the necessary platform for electronic commerce development.

In Europe electronic commerce is at an embryonic stage. Further development is hindered by lack of security and standardised electronic payment methods; regulatory issues such as establishing internationally binding laws for consumer

protection, copyright, and privacy and against cybercrime; insufficient availability of end-to-end high bandwidth infrastructure, relatively slow consumer acceptance of new payment methods and, last but not least, high cost. Many of these issues are addressed by the Memorandum of Understanding regarding ‘Open Access to Electronic Commerce for European SMEs’ initially signed by over 75 organisations. The communication from Mr. Bangemann and Mr. Monti to the European Council, ‘Une Initiative Europeene sur le Commerce Electronique’ in April 1997 proposes additional actions to stimulate electronic commerce.

Despite the modest size of the market, electronic commerce is expected to grow rapidly as large and small businesses seek the competitive advantages it can provide: faster time-to-market for new products and services (especially in simple supply chains and between small suppliers and larger businesses), improved customer loyalty thanks to personalised communication, reduced distribution costs, and access to global markets.

Business-to-business electronic commerce currently shows the most promising growth prospects. It offers a cost-effective and timely way to procure business services, including accountancy, the supply of office equipment, and personnel recruitment. These services are being encouraged by national and European Commission funded programmes to promote electronic commerce in local areas.

In the manufacturing sector, Internet-based electronic commerce can be used to streamline supply chain communication between manufacturers, their suppliers and customers, gradually replacing existing methods such as Electronic Data Interchange using closed networks. The consumer goods market is expected to grow more slowly in the short term.

There has been a radical shift in the strategies of the telecommunication, entertainment and computing companies over the past year in the way they are addressing the consumer market. Plans for rapid broadband deployment in the short term have been replaced by plans for aggressively delivering Internet access, hybrid technologies that simulate interactivity (where digital satellite services are playing an increasingly important role) and a more gradual broadband upgrade over the next 10 to 20 years. The more gradual introduction of broadband networks is expected to be led by operating cost reductions and by increased demand, e.g. line maintenance cost reductions and growing demand for business inter-networking. The satellite communication industry which was confined to niche markets is now competing directly with media and telecommunication operators not only for the mass entertainment market, but also for communication and multimedia services. This change is due to technological advances that have increased satellite power and capacity while reducing the costs of service delivery and of user equipment.

Commercial Cable Network Cable

ATM ADSL Upgrades Modem

Notes: N.a. = Information not available

Comm’l launch 1997 = Commercial launch in 1997

..............Yes (Itd comm’l offer) = Yes (limited commercial offer)

In the business market Intranet data broadcasting will have a major impact. Improved availability of high speed LANs and WANs is expected to lead to a take-off of multimedia applications on the desktop. This is likely to be driven by the launch of solution packages for vertical markets such as healthcare, finance, education, travel, manufacturing and transport; horizontal applications such as teleworking and computer supported cooperative working; and, last but not least,

desktop access to World Wide Web multimedia and virtual reality applications.

OVUM forecasts that the installed base of business networked multimedia stations in Europe will reach almost 10 million by 2003, with world revenues increasing to 416 million ECU by 2000 and 2.5 billion ECU by 2003.

Companies seem to be ready to move from the early learning and experimental phase of using electronic commerce to widespread use with an increasing impact on the nature of business itself. Emerging ‘virtual companies’ could combine the expertise of many other organisations to serve end customers, opening new opportunities for SMEs. Companies with established names on the Internet are likely to become ‘shop windows’ lending their brand images to a range of goods and services. Virtual Electronic marketplaces should start to emerge where content-focused match-makers (as Forrester Research calls them) can help consumers to make purchasing decisions.

The pace of growth of European markets will be influenced by the regulatory and competitive environment and the evolution of socio-economic conditions. Rapid and harmonised implementation of telecommunication liberalisation directives and changes in the regulation of media-telecommunication markets could create the conditions for the exploitation of economies of scale and scope, service and equipment price reductions and the speed up of market development.

Unsynchronised and fragmented implementation of liberalisation measures will lead to uneven market growth and increase the existing gaps between the more and less developed countries and regions in Europe. Universal service and equal access policies will be needed if the Less Developed Regions and socially excluded groups are to participate in the European Information Society.

As we approach the end of the decade, competition in ICT and service markets is becoming more complex. Major telecommunication and cable network operators - the Incumbent operators - are forging alliances with media content companies, with each other, and, increasingly, with the fast growing satellite operators. Insurgent companies, including new alternative telecommunication operators, Internet Service Providers and giants such as Microsoft are growing in strength and forging new alliances. Incumbent operators are becoming more market driven and moving quickly to gain a larger share of emerging markets (especially the Internet access market). Incumbent operators are likely to see their dominance reduced, but they should continue to play a major role as infrastructure and service competition increases in the convergent telecommunication-media market. Insurgents are likely to become major players, but without achieving dominance in this market.

As Incumbent strategies converge with those of Insurgents, both are likely to focus on the more profitable markets and the more developed regions of Europe. In terms of socio-economic impact, there is a real risk that these alliances between major players, whether Incumbent or Insurgent-led, could result in captive markets that they will want to protect. If this occurs, the information infrastructure will support seamless interoperability among applications and offer access to exclusive information content, while providing only limited gateway connectivity to rival information infrastructures. This is the ‘stovepiping scenario’ offered by the Visionary Research Experts Panel in its report for the European Commission in 1996. Delays in interoperability and equipment standardisation, the absence of effective universal service and equal access policies, inappropriate competition policies and slow market growth could lead to this scenario.

The best chance for balanced economic growth and the reduction of the potential for social exclusion in the future continues to lie with another scenario, the Virtual Community Renaissance.

This scenario implies the full exploitation of the benefits of market liberalisation as a result of widespread and open access to infrastructures and services and a blossoming of a variety of service and content providers from all sectors, together with an active role of the education and social services sectors.

The 5th Framework Programme funding in the ICT sector could play an important role in these developments by building European technological capabilities, encouraging the participation of new content and service providers, involving SMEs as much as possible in advanced information and communication service trials, and by paying special attention to SME and professional interests in work on standards, security, quality, privacy and interconnection issues.

Telecommunication operators are likely to reap the benefits of their investments in upgrading networks to broadband capability. By the year 2006, OVUM estimates that nearly 13% of developed world households will be connected to interactive broadband wire or fibre services, compared with 3.4% connected via satellite, 1.6% via ISDN and 0.85% via cable modems.

Europe is suffering from sluggish economic and employment growth with a high unemployment level (10.7% on average in mid 1996, half of which was accounted for by the long-term unemployed). In contrast, the impressive performance in job creation of the United States economy (1.6 million new jobs in 1996 alone) has been linked to widespread restructuring and adoption of innovations that are improving industry competitiveness, deregulation and liberalisation of key service sector markets as well as deregulation and flexibility of the labour market.

In Europe, reforms addressing the structural rigidities in product, service and labour markets are needed to achieve greater flexibility and competitiveness in the face of the growing pressure of market globalisation and to create conditions that will foster economic growth. But ‘employment-friendly growth must be based on an offensive strategy that promotes increased demand, rather than a defensive strategy based on the sharing of existing jobs’ (European Commission, DG-V Employment in Europe, 1997).

The best opportunities for stimulating demand growth and industry development come from product and process innovations supported by new ICTs together with the take-off of new markets for multimedia and interactive services. The development and competitiveness of the European ICT industry is crucial as a major and growing part of industrial activity in its own right, as the provider of innovations for all other sectors, and as the major actor in building the information infrastructures at the core of the emerging Information Society.

The impact of ICTs on employment development occurs at three levels: directly on the industry itself and related sectors; indirectly through changes in production processes and productivity increases in other sectors; and on the structure of the economy as a whole through increased international tradability of services and the resulting changes in the international division of labour.

The main recent studies assessing ICT employment impacts agree that the potential for job creation in the ICT industry is relatively minor as compared to the potential for employment growth in other sectors. A recent study by BIPE on the employment impact of telecommunication liberalisation projected gains of up to 1.3 million jobs by 2005, mostly outside the telecommunication sector where new entrant job creation is counterbalanced by dominant operator down-sizing. So far, the effects of substantial productivity gains and, in some cases, business relocation have been seen in employment reductions in consumer electronics, computer and terminal manufacturing, a trend which is not likely to change.

The growth of the software and services industry (presently 1.5 million employees in France, Germany and the United Kingdom alone) is creating employment opportunities and new jobs. The diffusion of the Internet, World Wide Web and Intranets is driving this growth especially in countries where Internet use more widely diffused and the national ICT industry is stronger. There is a strong potential for further growth because the development of the myriad of applications for the Information Society will require a massive effort in software development and content production. The linguistic fragmentation of the European software market represents an additional threat but also an opportunity for European-specific solutions.

The indirect impact of ICT diffusion on employment has a much greater potential for job growth than the direct impact. The European economy is still in the first phase of the process of restructuring and adoption of ICT innovations. This is characterised by rationalisation with the elimination of traditional jobs and emerging opportunities for new job creation. In the manufacturing industry, restructuring can strengthen competitiveness and promote the introduction of new technologies that are essential if new jobs are to substitute for traditional ones that are being eliminated. But this is unlikely to bring high net employment gains since the overall trend is toward the reduction of the manufacturing industries’ share of total employment. Net employment gains may come from the service industries which are growing in all industrialised economies.

Potential employment gains in the service industries are tied to the rapid introduction of new services. Telecommunication-related jobs are increasing in all sectors. For example, the introduction of call centre services to improve customer service in a wide range of industries employed 273,000 Europeans in 1996; a number which is expected to increase. The introduction of Intranets and Internet access is supporting increased networking and producing work for internal electronic data processing personnel and supporting company growth leading to new jobs opportunities. Electronic commerce and virtual banking diffusion in the short to medium term will create new employment opportunities as companies exploit the potential of these new services in combination with their existing businesses. However, this process is also eliminating some traditional jobs. The net effect of employment changes will depend on the overall pace of growth.

The organisation of work in the emerging knowledge-based economy is radically changing as fixed systems of production become flexible, open-ended processes through organisational changes. Described as the ‘flexible firm’, these workplaces are envisaged as places requiring highly skilled people working in high trust environments. In the new decentralised and network-oriented organisations, it is expected that workers will perform a range of tasks. Continuous technological innovation is contributing to the need for life-long learning and continuous training. In 10 years’ time, 80% of the technology in use today will be obsolete and 80% of the workforce will be operating on the basis of formal education and training acquired more than 10 years ago. In the face of a strong trend toward the up-skilling of the labour force, the lack of appropriately qualified personnel could become a bottleneck for European firms as they implement advanced communication technologies and services. Investment in human resources and the restructuring of European education and training systems are indispensable prerequisites for job and economic growth. The faster diffusion of advanced communication technologies and services could enable the use of applications that help to stimulate labour force skill improvements.

The reorganisation of work is a cause of uncertainty but the European Commission’s Green Paper ‘Partnership for a new organisation of work’ proposes a balance between job security and flexibility as the core of new partnerships between social partners and public authorities with the aim of building a new framework for the modernisation of work. The Green Paper points out that the German programme on work and technology and Scandinavian programmes show that firms that restructure work organisation and industrial relations when they introduce technological innovations are far more successful than those firms that rely solely on the introduction of advanced manufacturing technologies to improve their performance.

The socio-economic gaps among European countries and regions are a well known reality affecting the accessibility, affordability and use of advanced communication networks and services. Throughout Europe a wide range of initiatives and experiments are taking place which may reduce some of the existing development gaps in the medium term. These are increasingly focused on end-user demand and the development of new applications. This is an important change from the past emphasis on the deployment of advanced infrastructure.

These initiatives involve about half of the European regions, as illustrated by the 100 projects and related official documents on Information Society strategies at the regional level documented by MONIREG project for the six IRISI regions and 23 RISI regions that are developing Information Society strategies under European Commission schemes and programmes. There is also considerable vitality in local bottom-up initiatives such as civic and city networks. By January 1997 about 2000 Web sites for European cities and towns had been set up; 1300 by local authorities (4% of total local authorities) and the number is growing very rapidly. Almost all civic (official sites of local authorities) and city (unofficial sites) Web sites start with promotional aims for tourist resources, local businesses, cultural events, government services and then evolve towards more interactive services. They stimulate the use of the Internet among other parts of public administrations, SMEs, community groups and citizens.

The introduction of new communication technologies changes the competitive balance between regions. Since they reduce access and interaction constraints between regions (typically related to distance and physical infrastructures), they increase the importance of other factors, especially within-regions factors, such as human capital, environment, quality of life, local services, and the need for pro-active local authorities and public-private partnerships. This change can open new opportunities for rural regional development as it enhances the relevance of their competitive advantages in lower wage costs, greater flexibility, more attractive environment and higher quality of life.

For example, the major investment in communication infrastructure in the past 5 to 10 years in the Scottish Highlands and Islands has been accompanied by gains in local economic growth, employment and prosperity. But these gains have been driven mainly by external companies investing in new companies or setting up local branches rather than by local enterprises taking advantage of the new infrastructure.

There is a North-South division in Europe between economically stronger and weaker regions as well as an imbalance in the pattern of Internet use within each country. In some countries business-oriented Internet Service Providers are playing an important promotional and supportive role especially for local authorities in smaller towns and tourist areas. Research and educational institutions are playing an important role in other countries.

Expressions of concern about the emergence of a two-tier Information Society correctly identify the potential danger of social exclusion, but greater attention needs to be given to the social and economic as well as the technical aspects of exclusion in the European Information Society. Exclusion can come in many forms and presents demanding challenges to policy makers at many levels.

Social exclusion refers to processes of marginalisation and the creation of disadvantage among certain groups in society. Advanced communication technologies and services have the potential to help overcome some forms of exclusion, but they also have the potential to create or reinforce existing forms of social disadvantage.

The social groups likely to be disadvantaged in this way, as a result of age and disability, low income and poor education, remote location or migration, present different technical and social challenges within the emerging Information Society which can be relatively easily identified. Other forms of disadvantage are more diffuse such as that which emerges as a result of gender differences. Other groups, such as drug addicts or sufferers of AIDS are often seen as less worthy or central, though they are extremely vulnerable and would gain from access to electronic information systems and support. The substantial differences within these groups mean that they cannot be treated homogeneously with respect to their needs for new services or to their capacities to take advantage of them. In principle, each of these groups can be reached and included with appropriate technical and social strategies.

Participation in the European Information Society cannot be guaranteed through technical solutions alone. Participation requires access as well as accessibility. Access is a matter of making appropriately designed solutions available when and where they can benefit the groups that need them most. Appropriately designed solutions for the physically disadvantaged, particularly for the elderly and the disabled, are a priority in European programmes and projects. This is a necessary but not a sufficient condition for reducing exclusion. The design of applications can be either in terms of specific and focused solutions, for example for the partially or non-sighted, or by using inclusive or barrier-free designs such as touch screen interfaces in public information access points.

Appropriate social policies as well as design solutions for the socially disadvantaged or marginalised must take into account a range of barriers to participation. Individuals and groups can be excluded from participation in the Information Society because of their lack of skills and competencies but also by their inability to recognise the value or usefulness of advanced communication technologies for their everyday lives. Education and life-long learning have significant roles to play but new opportunities will emerge slowly and unevenly particularly among the excluded groups.

A key issue for the social acceptance of the emerging Information Society in Europe is whether it will be possible to preserve strong traditions of solidarity and a key role for public and social services in a liberalised and competitive market where the traditional welfare state is being dismantled. Public and social service providers in Europe are now under considerable pressure to rationalise, reduce costs, and to improve effectiveness and efficiency. The use of ICTs has the potential to help to achieve these goals and, at the same time, to extend the range and quality of services. These benefits can be achieved by exploiting the use of ICTs to provide greater transparency, achieve wider reach of services, and enable better access to information and support services.

There is considerable concern among public servants, social workers, social and cultural associations, grass-roots groups and non-governmental organisations (expressed for example during the Dublin Colloquium ‘People First’ debate on the Commission Green Book on ‘Living and Working in the Information Society’) that the way ICTs are being implemented is often not suitable if the goal is to achieve these benefits. The gap between good intentions and reality is often very wide.

A good example is the healthcare sector. The impact of ICTs in healthcare is pervasive and affects hospital administrations, health prevention, and education systems. The introduction of new services also enables self care and home care and sophisticated telemedicine applications. ICTs are also being used in ways that substantially improve the management of work, information support for health prevention systems, and offer the possibility of providing high quality services at a distance. However, studies have shown that many hospital administrators and health officials are introducing ICTs as a tool for cost control and standardisation of medical and nursing intervention leading to criticisms of the increasingly impersonal, almost factory-like, character of many hospitals and the emergence of resistance to the new applications by the personnel.

Experience is showing that positive results are achieved only if appropriate training is undertaken before changes are introduced and when careful planning with user participation occurs during the selection and implementation of the technologies.

There is a potential conflict between the need to achieve rapid results in cost reduction and organisational rationalisation as a result of the introduction of ICTs and the need to ‘put people first’ which requires investment in training and careful longer-term planning. Plans for innovations in the public and social services need to strike a balance between practical constraints, targets for efficiency gains, and people’s needs. If this is not achieved, there is a risk that resistance by public and social workers and users will slow down the adoption of innovative ICT applications.

While macro-economic and market trends suggest the further dismantling of the traditional welfare state, an important social development attracting increasing attention is the rise of the so-called ‘Third Sector’. This sector is comprised of non-profit and voluntary organisations active in education and research, social services, culture and recreation, and business and professional services (including labour unions).

The development of the Third Sector indicates the potential organising ability of European society and its capacity to respond to traditional and new needs that are either no longer, or not yet, satisfied by the public and private sectors especially in the provision of social and cultural services. There is some evidence which suggests that the Third Sector will play a crucial role in supporting broader social participation in the construction of the Information Society. This supportive role could emerge by:

• Providing alternative and cost-effective ways to counter traditional and emerging social exclusion and filling gaps left by the declining welfare state by substituting new agencies which become active in the delivery of services (the model of ‘third-party government’ which may be emerging as an important socio-political innovation).
• Offering sources of new opportunities for many social groups which supplement their largely passive exposure to entertainment services.
• Serving as a field for grassroots experimentation and innovation with new technologies, driven more by user needs than by the technologies.
• Providing a driver of demand for new communication and interactive services, especially since ‘networking’ is at the heart of non-profit organisation activities.

Privatisation and changes in telecommunication and audio-visual regulation are accelerating the growth of markets for advanced communication technologies and services. Policy and regulatory decisions introduced by the European Commission and by the member states will continue to play a central role in the rate and direction of infrastructure and service development. As pointed out by the recent report on ‘The Competitiveness of the European ICT Industry’, ‘incomplete liberalisation of the service sector represents a critical weakness for the competitiveness of EU industry’. Regulatory changes are now opening markets to new players and challenging traditional pricing and service provision structures. However, competition which works to the advantage of users cannot be taken for granted. There are prospects for the retention, extension, or creation of market power in some segments of advanced communication technology and service markets. The potential for the emergence of supplier or user dominance will create new regulatory challenges.

’Without access to networks and to certain types of information, the European Information Society will mean little to a great many people. Universal services and the obligations that are imposed on telecommunication service operators have been addressed by the European Commission and a minimum set of services that should be offered at affordable prices has been defined. But the new advanced communication and information services go beyond the obligations that have been agreed. The consensus as to what people ‘need’ in terms of access to the Information Society and the redefinition of universal service are on-going processes and the consensus is likely to shift quite radically in the next few years. There is a need for arbitration mechanisms to ensure that potential conflicts between the commercial interests of suppliers and citizens’ rights to equal access and universal services are resolved as new services and technologies diffuse more widely.

The Internet is the focus of European public discussion regarding the extension of new information services to consumers and citizens. One approach to reducing the imbalances and disparities in access to new services is working toward a goal of access to public Internet service as a new criterion for universal service throughout Europe, although the costs of achieving this goal would be substantial.

The European Information Society Forum on Sustainable Development, Technology and Infrastructures has called for the development of a ‘middle ground’ concept whereby infrastructure capacity could be extended to ‘service centres’ or ‘telecottages’ in every community. It recognised that demand for new services will not emerge spontaneously until the benefits are better appreciated.

There are problems in promoting the Internet as a public access solution.

• The modest current level of penetration of the Internet in European public institutions.
• The English language dominance of many Internet tools and information resources.
• The current Internet structure will change as the result of responses to growing congestion.
• Some groups will ‘opt out’ of the public infrastructure by implementing new forms of ‘bypass’ whereby companies set up Intranets within locations and ‘Extranets’ with their distant establishments and close partners.

A policy commitment to ‘affordable access’ offers another ‘middle ground’ policy for broadening access to advanced communication services. However the definition of affordability in the context of telephony-based universal service is relatively immature in most of the member states and its extension beyond telephony will be difficult to implement.

Solutions depend on the evolution of pricing and business models for the Internet use. If the Internet is to form the backbone of advanced communication service, measures will be needed to cope with its fast and unpredictable rate and direction of evolution. Putting ‘people first’ requires a specific concern for the role of individuals as consumers. ‘Consumer empowerment’ measures are needed to ensure that they are able to make informed choices about their selection of services in the Information Society.

From social and economic viewpoints, the degree of consumer confidence in advanced communication services is extremely important. Advanced communication technologies and services are an intimate media over which highly personal exchanges occur. Acceptance of these technologies is closely bound to the trust that they are, in fact, media in which personal privacy is secure.

Privacy issues include empowering individuals to control who receives and can read messages as well as preventing unrelated parties from identifying who is engaged in communication. They also involve preventing the monitoring of location, time and duration of communications for purposes unrelated to billing or system administration. In economic terms, trust is essential not only for acceptance, but also for the competitiveness of technologies or services in relation to substitutes. Breakdowns in trust are very expensive to repair; prevention is likely to be cheaper than the cure.

The European Data Protection Directive is a landmark piece of legislation. Competing interests and consumer awareness will influence implementation of data protection rules.

• The social responsibility to regulate the collection and use of information about individuals is perceived very differently from the perspective of the State, the private citizen and the business enterprise.
• While users of the Internet share an interest in the integrity and confidentiality of information, providers are interested in the identification and authentication of users.

Enforcement of the Data Protection Directive could involve potentially high costs of implementation and it could have an economic impact on the operation of telecommunication networks. Given existing differences in legal, social and cultural norms throughout Europe, there is a reasonable chance that those member states with less stringent compliance procedures will attract a greater proportion of content providers and service providers who will seek the advantages offered by weaker individual privacy protection regimes. Counterbalancing this potential movement of commercial activity to member states or countries outside the European Union is the unknown tolerance of citizens for greater intrusion into their everyday lives. If there is resistance this may undermine the widespread adoption of the new services. The impact of technical developments which may transgress the limits of people’s trust in the Information Society will need to be monitored carefully to ensure that the designers of advanced communication technologies and services do not overlook these important social factors.

Systems for providing individuals with control of the release of personal data (linked by name or other precise information) will be particularly important for future work on the design of advanced communication technologies and services in the 5th Framework programme. When protection concepts become integrated in the design of software and hardware developed by companies outside the European Union, issues of the compatibility of European designs with those of other players will be essential to address.

Another social impact associated with the diffusion of advanced communication technologies and services is safety from fraud and offensive material. The technical means of preserving safety are weak in the Internet at present and the use of strong encryption methods continues to be a controversial means of preventing fraud. Although no technical system is ultimately secure because of continuous technical advances and human error, the appropriate balance between the requirements of the law and the state and those of commercial service providers and individual citizens will require continuing negotiation. Decisions about the role of ‘trusted third parties’ or state access to encryption keys will also have a potentially major impact on the location of economic activity in the services area within the European Union and in other international markets.

The diffusion of new information services has a potentially substantial impact on the economic viability of the new services. Although it is often true that more competition produces better prospects for economic ben efit, in some cases, less, rather than more, competition may be desirable. This is likely to be the case where substantial investments in fixed costs are required.

For example, an economic basis for copyright protection which reduces competition is the low cost of reproducing published information relative to the costs of acquiring and promoting it. Without copyright protection, incentives to invest in the fixed costs of acquiring and promoting publishable content for information services would be substantially diminished for the ‘copyright industries’.

Building new markets for advanced communication services will require an efficient method for negotiating property rights in digital content and this is not yet fully in place. Efforts are underway to extend and consolidate copyright in the digital media domain, but there are contradictory approaches to compensating information rights of owners for use of their work in the member states of Europe. The Anglo-American, German-Spanish, Dutch and Nordic models all differ considerably. The growth of content production represents an important opportunity for European employment and economic growth but these opportunities will not emerge unless there are reforms in the scope and remuneration of copyright holders.

One of the impacts accompanying the diffusion of ICTs is the need for co-ordination between the copyright societies representing different categories of works and creators. Closer co-ordination between the collecting societies and alliances within the copyright industry would make the introduction of ‘one-stop shopping procedures’ possible.

These developments would make identification of the origin of works easier for authors, performer and producers, and improve information about the level of fees and the rights given to users. This in turn would strengthen incentives in Europe for the introduction of new services. As the economic significance of copyright registration systems grows, the problems of implementation are likely to grow as well. ACTS and ESPRIT projects are developing the technologies but this action will not be sufficient to resolve future problems. This is because:

• Harmonisation efforts through initiatives of organisations like the International Confederation of Societies of Authors and Composers and the World Intellectual Property Organisation and other international clearing houses may encounter roadblocks at the national level from national collecting societies or from rights holders and users who do not accept the terms being offered.
• The consolidation of rights is likely to impact on the capacity of smaller producers to introduce new services in markets where they compete with larger producers. If larger rights holders have advantages over smaller ones, this could restrain European participation in the rapidly growing content-production industry. European content producers, on average, are smaller than their counterparts in the United States.

The recent European Commission Communication on ‘The Competitiveness of the European ICT Industries’ raises concerns that the industry is showing signs of slow market growth, declining world market shares for European producers, and uneven responses to market developments and technological innovations. To increase the pace of evolution of the ICT industries, the Communication points to the need to transform the ICT industrial structure, to provide enabling mechanisms leading to European excellence in software, to create new markets by ensuring the emergence of timely standards, and to take initiatives to accelerate ICT take-up and to promote awareness. The ACTS Programme is supporting projects that are responsive to these challenges and exploitation of ACTS results in the 5th Framework Programme will be important in building the European Information Society.

The development of ‘technology clusters’ for multimedia is critical for Europe. A leading example of the development of a successful technology ‘cluster’ was the Global System for Mobile communications (GSM). It is not clear how the key actors in Europe can be brought together to create other successful technology clusters. The ACTS programme is well positioned in mobile and lower-level infrastructure standards development where European firms are leading the way; less so in multimedia.

The impact of developments in other ICT areas within and outside the European Union means that there is only modest potential for successful cluster formation in the short term in the multimedia applications area. Analysis of the participation of key European players in standards organisations shows that in the image processing and digital audio-visual services areas, a technology cluster has already formed and European firms are not at the forefront.

In contrast, there is potential for the emergence of a successful technology cluster led by European firms in the digital mobile network field. In this area there is evidence of increasing levels of cross-fertilisation with activities underway in network management consortia. European firms are among the leaders in this development community and a large portion of the world market for digital mobile services is supported by European-developed technologies. A successful cluster of advanced ‘third generation’ mobile technologies could form at the seam between the services and access levels.

In late 1996 through mid-1997, the trend toward the computerisation of telecommunication technologies accelerated. This was most notable for the Internet, but it also applies to other areas. Digital signal processing advances have lead to breakthroughs in modem technology with increasing promise for broadband Digital Subscriber Line deployment and progress continued to be made on digital wireless technologies. The ACTS programme is addressing these issues. They should be priorities for the 5th Framework Programme.

• The role of Digital Subscriber Loop technologies in the local subscriber loop to alleviate circuit-blocking problems.
• The impact of the integration of LAN technology into digital local loops and the implications for end-to-end ATM connections.
• The integration of ATM switching and intelligent IP (Internet Protocol) routing.

The question of how to support Web traffic on a telecommunication infrastructure designed primarily to handle voice is open and fertile ground for RTD work. Web infrastructure software offers many RTD opportunities, and Web-based network management is attracting the attention of companies such as Digital Equipment Corporation and Hewlett-Packard as well as new start-ups. Vendors are working on ‘mid-level’ managers - stripped-down platforms that funnel data to Web-based applications. The Web has given birth to an extraordinarily rich collection of software products and tools. These include Web programming and Web-site development tools, Web site activity and Web user ‘state’ tracking software, and Internet telephony. Much of this activity is taking place in the United States and Europe risks being left behind.

The ACTS Programme is contributing to the development of Internet/WWW Intranet services in Europe. Projects trials include high-speed Internet access and Intranet technologies in new services, and adapting interfaces to Internet browsers and interfaces for user interaction with the net which are starting to be well-known by users. A cluster of projects on brokerage-information architectures and work on Web-related technologies is also underway.

Determined and continuing RTD effort is recommended to exploit the potential of these developments.

The ACTS Programme includes the largest number of projects carrying out trials of advanced communication technologies and services in Europe with involvement of over 10,000 European businesses. These trials are demonstrating the social and economic viability of advanced communication applications, a role that is very important because of the slower than expected deployment of broadband networks in the European market. ACTS trials are helping to move Europeans onto the learning curve for new services by increasing awareness of the potential benefits of new applications, contributing to the reduction of barriers and the elimination of social and economic problems, and by providing training to residential users and SMEs. For example:

• ACTS trials are testing digital mobile and value added applications. This is essential if Europe wishes to maintain leadership in the mobile market. MOMENTS is testing the commercial viability of multimedia value added services using GSM networks such as News-on-Demand, City Information, Travel Information, and Internet mobile access. This is done using wireless laptops given to over 100 residential users in Germany, Italy and the United Kingdom. ON THE MOVE is testing mobile multimedia services including access to the WWW with several hundred users in Sweden, Germany, France, the United Kingdom and Singapore. UMPTIDUMPTI is testing advanced mobile services for the disabled in the United Kingdom and Belgium.

• While many Video-on-Demand and Interactive TV market trials are being cancelled or postponed, several ACTS projects are underway. Two projects, SPECIAL and MUSICIAN, are carrying out large scale trials for the InfoCity network developed by Vebacom in the German NordRhein-Westfalen area involving up to 8,000 residential users by the end of 1997.

• The ACTS Programme includes a very large number of project partners from the Less Favoured Regions or areas with economic problems. A survey of 27 ACTS projects with larger user trials that are testing broadband networks, advanced communication services and multimedia applications, shows that about 60 trial locations (out of a total of 117 trial locations) are situated in depressed areas, rural areas, industrial reconversion areas and the Nordic regions.

To enhance the likelihood that RTD work within the 5th Framework Programme will produce responsive technologies and services for business and social concerns in the Information Society, renewed efforts will be needed to link research and development with emerging social and economic goals and aspirations.

National and European policies will continue to be needed if a socially sensitive regulatory framework is to be created for the Information Society and appropriate fiscal measures for initiatives supporting life-long learning, education and training are to be established. Such measures will be needed so that citizens, public agencies and firms can take advantage of the opportunities that advanced communication technologies and services will provide.

Recent initiatives by the European Commission and the member states are tying social and economic policy developments more effectively together with technical developments to meet these challenges. These include support for Electronic Commerce and an action plan on ‘Learning in the Information Society’. But as the Commission’s Communication on ‘The Competitiveness of the European ICT Industries’ emphasises, further action is needed.

The 5th Framework Programme calls for the rationalisation of the structure of European Union RTD programmes. The new programme offers an opportunity to focus European research efforts in areas that will be crucial to respond to European social and economic needs and to maintain and develop the Union’s scientific and technological capability. The new structure is built around three thematic programmes (the sciences in the living world and the ecosystem, the user-friendly information society, and competitive and sustainable growth) and three ‘horizontal’ programmes (international cooperation, innovation and participation of SMEs, and improving human potential).

It will be essential for the new approach to exploit the key opportunities for economic and employment growth which can be supported by the faster development and diffusion of advanced communication technologies and services. The 5th Framework Programme will need to recognise explicitly the importance of the social and economic impacts of ICTs and will if the goals of the programme are to be met. A failure to do so will mean that European institutions will not address social and economic issues associated with ICTs and will lag behind technological developments. In this event, the full potential of the technologies will be unavailable to European users.

This year’s FAIR analysis identifies the following key social and economic issues which need to be addressed alongside future RTD programmes.

• Rapid and harmonised implementation across the European market of telecommunication liberalisation measures and the opening of media-communication markets to support the rapid diffusion of technical innovations is essential. Faster and more coherent market liberalisation can lead to the exploitation of new service opportunities by allowing the realisation of economies of scale and scope by producers in the Single European Market and through the macro-economic multiplier effect of increased economic activity by effective ICT users.

• Increased efforts will be needed to exploit the ‘Internet multiplier’ effect. Internet, World Wide Web and Intranet-based services offer great potential for direct and, especially, indirect employment growth (estimated in the US to be 4 new indirect jobs for each new direct job). Most job gains will come from the producers of Web-related hardware, software and content, and from the wide range of firms supplying them with intermediate goods and services. To realise this potential, strong Internet growth trends must continue. The European software programming and content industries will need to rise to the challenge, particularly since non-European companies dominate the hardware and software industries. The Commission’s initiative to support Electronic Commerce can play a crucial role by creating new demand for innovative hardware and software innovative developments.

• There is a growing need to accelerate the development of the ‘copyright industries’ in Europe (computer software, motion picture, audio-visual and publishing industries) where new opportunities to add value are rapidly emerging in the newly integrated supply chain of multimedia and communication services. These industries currently employ approximately 5 million people in Europe (3% of total employment) and about 2 million of these jobs are in the publishing sector. Andersen Consulting estimates that some 1 million new jobs will be created in the European multimedia content industry over the next ten years.

All these developments in ICTs have the potential to stimulate economic growth, to create jobs and to reduce the threats of social exclusion for Europe’s disadvantaged people.

But to turn this potential into successful results there are important cross-roads where decisions taken in the short run will have a major bearing on future success. The following actions are needed.

• To exploit the Internet multiplier and reduce the gap with the United States a ‘Second Generation Internet Initiative’ similar to the one in the United States and suggested by the Strategic Panel of Visionary Research Group is necessary to help to respond to demand from the scientific and technological community and to reverse the European tendency for demand to develop only after infrastructure deployment in this area.

• To reduce the threat of social exclusion in the emerging European Information Society, renewed efforts to negotiate a solution to the unevenness of access and affordability of access to the new ICT-based service applications are needed. The feasibility of ‘middle ground’ solutions for public access to the Internet via community and public access points needs to be investigated as a means of stimulating the diffusion of advanced information and communication services. This would enable new education and training services to flourish. Special efforts will be needed to respond to the needs of the socially excluded in society if they are to become more involved in the design and deployment of new ICT applications.

Note: FAIR Reports and Working Papers are located at:URL http://www.analysys.co.uk/acts/fair/

Working Papers No. 2 to No. 11, and No. 13 to 26 can be obtained from SPRU at the Mantell Building, University of Sussex, Falmer, Brighton, East Sussex BN1 9RF, United Kingdom, by contacting Cynthia Little, Tel. +44 (0) 1273 678165 or Fax +44 (0) 1273 685865 or email c.m.little@sussex.ac.uk

• Jacques Bernard, Technology Investment Partners (TIP), Paris, responsible for technical trends analysis
• Gabriella Cattaneo, Databank Consulting (DBC), Milan, Prime Contractor
• Professor Robin Mansell, Science Policy Research Unit (SPRU), University of Sussex, Brighton
• Professor Franco Morganti, Databank Consulting (DBC), Milan, Prime Contractor
• Professor Roger Silverstone, Graduate Research Centre in Culture and Communication (Cul Com), University of Sussex, Brighton
• Professor W. Edward Steinmueller, Maastricht Economic Research Institute on Innovation and Technology (MERIT), University of Maastricht and Science Policy Research Unit (SPRU), University of Sussex, Brighton

Copies of this report can be obtained by contacting:

European Commission

DGXIII: Telecommunications, Information Market and Exploitation of Research

Directorate B: Advanced Communications Technologies and Services, Unit B1

Avenue de Beaulieu 9

2/27 B-1160 Brussels, Belgium

Fax: +32 2 296 29 81

FAIR Working Papers providing full references for this report are located at:

FAIR report hard copies are available from:

Information about SPRU is located at:

Information about Cul Com is located at:

Information about MERIT is located at:

Note: The FAIR (Forecast and Assessment of Socio-economic Impact of Advanced Communications and Recommendations), Project No. AC093 is a horizontal project in the European Commission DGXIII Advanced Communication Technologies and Services (ACTS) Programme. For more information contact: