Driving productivity through Europe s businesses
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1 Driving productivity through Europe s businesses Clive Ansell BT Group Strategy Director BT Plc
2 Drivers for EU productivity Global competition is intensifying: new economic and political orders are evolving, e.g. India and China EU lagging behind other competing economic zones with an ageing population: need to improve competitiveness Renewed Lisbon Agenda and i2010 initiative provide a framework for seeking to boost efficiency through wider use of ICT ICT investment, supported by process change and skills enhancement, is a key driver of productivity gains within the EU ICT impact to date is sectorally and regionally limited
3 Importance of ICT to productivity Next-generation infrastructure and near ubiquitous broadband will deliver innovative on-line content-based products and services to enhance economic performance Increasing dependence of businesses (including SMEs) and government services on effective ICT investment ICT critical to efficiency in energy, transport, health, security, retail and services sectors Needs training and education, resource flexibility, incentives to innovate and re-engineer business processes, and access to world-class ICT systems from a wide range of competitive suppliers
4 Impact of various factors on Productivity Growth Annual percentage growth TFP growth Reallocation of hours between sectors Labour quality improvements Non-ICT capital deepening ICT capital deepening EU-4 (Fr, De, NL, UK) UK US Sources of labour productivity growth, market economy, van Ark and Inklaar (adapted).
5 It is much more than investing in IT 10% 15% Intangibles Organisational assets/people, business processes, culture 75% IT capital Technology complements Source: Brynjolfson, 2003
6 Focus on TFP impact 1) Impact of ICT producing sector (software and hardware firms) 2) ICT capital deepening (more ICT investment in general) 3) ICT ability to combine resources more effectively (impact on total factor productivity (TFP) ) Information and knowledge dissemination and collaborative creation Elimination of waste: lowered error rates/ inconsistencies, non value adding processing Elimination of manual processing Best practice replication Information capture and analysis Catalyst of change Taking advantage of (global) comparative advantage Accelerated innovation Extending markets and service hours Expanding or reorganising the workforce
7 ICT as an enabling technology for ICT can:- EU business productivity Promote/enable significant benefits in excess of base investment Act as a catalyst for general business change to promote productivity Process change, skills enhancement, improved supply chains, etc. Enables wider TFP benefits through effective integration But to maximise these benefits:- Needs to be EU-wide business service competition to deliver the best ICT services and supporting market driven changes EU Regulatory framework must promote competition at the business service level, not just at residential level
8 Typical Business Services Products Applications Remote Access Web-Hosting Data Warehousing Video Conferencing VoIP Internal LAN / WLAN Management Internet Access Access Own fibre or third party (usually leased line from SMPO), differentiated by bandwidth and QoS features Storage and Backup Voice VPNs to multisites IP VPNs Security, eg Firewall, content Data VPNs filtering to multisites Source: Ovum EPF 2006 Nongeographic numbers Least-cost routing
9 Importance of competitive access systems Typically access elements approximately 40% of cost base Access margins low, excessive access prices make bids uneconomic Lack of fit for purpose access products prevent bids which meet customer needs Global/EU-wide ICT services are key enablers to business productivity Lack of effective access products prevents business from rationalising their processes at enterprise scale
10 Structure and type of customer ICT service demand For the sake of simplicity, global/eu services are represented as one box. Usually, there would be multiple international connections and from each international Point of Presence, a further range of sites, using different products, would be connected. Customer Corporate HQ Regional Office International Office Urban Retail Outlet Rural Retail Outlet Employee Residence Partial Private Cct./Leased Line Interconnect ULL* Own fibre Service Provider A single bid may require all forms of access Bitstream Bitstream *ULL for business only practical in very dense business areas.
11 Harmonisation of existing remedies Best practice everywhere : needs consistent application of existing remedies Current EU mechanism is part of the solution but real substance of remedies is at national level Possible trans-national solutions: ERG to develop its thinking on harmonisation The Commission proposal on veto on remedies ERG could encourage harmonisation with a veto as a useful backstop? Improved appeal systems
12 New Remedies Functional Separation Which is: - Separation of long term SMP access and backhaul facilities - Separate management - Separate incentives - Requirement to treat all customers including downstream arm(s) equally (identical systems, processes, prices, service levels) - Separation policed by an independent Board, NRA and ability of third parties to sue on the Undertakings Has value in Directives even for NRAs that do not intend to pursue it Regulatory Holidays - Not necessary to address higher risk (use higher ROCE) - Inefficient, do not distinguish between Business and Residential
13 Access for Business Services Key to EU success Business customers require service to be delivered to multiple sites, often across international boundaries by a single communications service provider Key implication for policy is that for competition to exist at all, competitive access must be available at all sites Customers looking to service providers to integrate their diverse end-to-end communications functions, including fixed, mobile, e- mail, voic , LAN access, etc. To meet the needs of pan-european business customers with sites in several EU countries, access conditions should be harmonised as much as possible across the EU, but taking account that remedies suitable for mass markets may well not be applicable to businesses
14 Summary ICT is key to promoting productivity in the EU if business has access to competitive business services to exploit the ICT EU-wide Business Service competition is key to ensuring best practice developed and implemented in the EU Competitive access conditions should be introduced across the EU to ensure success for Europe s business services Vital that EU creates conditions that permit business to use ICT as a genuinely enabling technology
15 THANK YOU Offices worldwide Telecommunications services described are subject to availability and may be modified from time to time. Services and equipment are provided subject to British Telecommunications plc's respective standard conditions of contract. Nothing in this publication forms any part of any contract. British Telecommunications plc 2006
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