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ICT investment paying off, says i2010 report

The information and communication technologies (ICT) sector still remains one of the most dynamic sectors in Europe, despite a decline in market growth in 2006. It is this sector that is showing the first signs of a fundamental shift towards a knowledge-based economy, according to the second i2010 annual report.

Published by the European Commission, the report finds that the ICT sector continues to grow faster than Europe's overall economy. Between 2000 and 2004, the sector contributed nearly 50% of EU productivity. In 2006, however, the growth rate dropped to 2.9% compared to 4.2% in 2005. This is to be expected, says the report, since many of the ICT products and services have been commoditised, resulting in a slowdown.

One of the big changes in 2006 was the shift from electronic communication services to software and IT services. Although accounting for 45% of the ICT sector, the growth rate of electronic communication services dropped to 1.4% in 2006, compared to 3.5% in 2005. The report attributes the decline to a slowdown in the growth of fixed and mobile voice services.

In contrast, the software and IT services have had the highest growth rates, accounting for 11% and 20% of the overall sector respectively. It seems that the EU software market is as dynamic as the US and Japanese markets. However, growth in IT services is expected to be lower in Europe than in the US.

Europe is on track to creating a knowledge-based society, claims the report. Proof of this positive trend is in the record growth in 2006 of new broadband connections. A total of 20.1 million new lines were reported in 2006, compared to 19.2 million in 2005 and 12.5 million in 2004.The highest penetration rates were recorded in the Netherlands and Denmark (30%).

European businesses make up a large part of these new lines; it is estimated that almost three quarters of businesses are now using broadband. However, the impact of ICT in core business processes is less visible, claims the report. Only 14% of EU businesses are selling on the Internet and a slightly lower percentage has established automatic links with their business partners, although a moderate positive trend can be observed for both indicators. Some 64% of EU businesses have a website, but only a minority of them are using it to offer services to business partners. Such services could include an online catalogue or information on prices.

But steady improvements have been seen in the area of eGovernment, with almost half of businesses filling in forms electronically. Overall, 2006 saw a growing maturity of online services. The Commission estimates total ICT expenditure by public administrations in the EU to be about €36.5 billion, and eGovernment expenditure to have been €11.9 billion in 2004. This investment is boosting the online availability of government services, says the report. It estimates that nearly half of the 20 basic services available in EU Member States are now full online transactions.

Individuals are also embracing new online services. A major trend resulting from convergence between broadband networks, content services and electronic devices is the development of new applications involving users in the content creation and distribution process. Popular applications such as blogs, podcasts, wiki, or video sharing, are enabling users to easily create and share text, videos or pictures. Market research on this emerging sector estimates that revenues could reach €8.3 billion by 2010 in Europe, with a growth rate of 400% over the next five years.

But there is no room for complacency, despite such positive trends, says Viviane Reding, EU Commissioner for Information Society and Media. 'ICT companies in Europe are still not able to profit from economies of scale in view of regulatory fragmentation that blocks the emergence of pan-European services and hurts the chances of e-communication operators and software companies to compete on the world market. The EU and its Member States need in particular to make a greater effort to remove the remaining impediments within the internal market for online services,' she says.

Other barriers to growth include the ongoing digital divide and under-investment in ICT research and development. Despite increases in national and European level investments, the report cautions that more is still needed if Europe hopes to reach its target of increasing research spending to 3% of GDP by 2010.

This year's i2010 report also sets out key policy issues for the future which will be debated during a review of the i2010 strategy later in 2007. These include assessing the policy implications of emerging trends in networks and the Internet; strengthening the user perspective in ICT innovation; and improving growth by removing artificial 'national borders' for online services. The review will begin with a round table on next generation networks and the Internet in the autumn.

Virginia Mercouri | CORDIS
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