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Is Europe Ready For Digital Cities? (Int'l Edition)


Business Week International International Business: EUROPE

IS EUROPE READY FOR DIGITAL CITIES? (int'l edition)

Amsterdam is one city eager to embrace the digital revolution. Fifteen months ago, the municipal authorities set up a citywide computer network based on existing phone lines. Now Amsterdammers can obtain public documents electronically and join Internet debates with legislators on everything from the minimum wage to city construction projects. And to encourage commerce on the system, companies are creating payment schemes for the Internet and devising electronic advertisements for business.

Like Amsterdam, such other cities as Newcastle, Stuttgart, Antwerp, and Stockholm have recently launched their own forays into cyberspace, even while most of Europe's national politicians remain ambivalent about unleashing the forces of change. Now, the European Union is throwing its political muscle behind this grassroots drive. On Mar. 30, Industry Commissioner Martin Bangemann announced a bold initiative to create 10 or more model "digital cities" in Europe (table). They would be completely open to competition in telecommunications now, long before telecom deregulation officially hits in 1998. Not surprisingly, Amsterdam is a prime candidate for the Bangemann plan.

PREEMPTIVE MAGIC. The goal is to accelerate the development of high-bandwidth havens as an experiment to drive down prices for new networks and services and lure private investment. The digital cities would become showcases of economic development aimed at winning support from politicians and regulators who are still fearful of deregulation's effects. "It's a test bed to show people what conditions will be like when markets are open," says Stefano Micossi, director general of industry at the European Commission. "We want to speed innovation and make the magic 1998 date reality now." Bangemann's team also wants high-speed networks to connect these cities.

In order for Bangemann's plan to work, national governments in Paris, Bonn, and elsewhere would have to exempt the selected cities from all the regulations that still heavily restrict telecom competition in every EU country except Britain and Sweden. The EU does not have the majority support to force member states to open their markets before the deadline, although individual countries are free to deregulate sooner. The Dutch government, for example, has already decided to allow tele-communications competition from such alternative networks as cable TV, electric utilities, and railways.

For those countries still reluctant to accelerate national deregulation, EU policymakers are hoping mayors and municipal governments will exert pressure on telecom authorities to experiment with deregulation on a limited scale. "The cities can play a role as catalyst to force industry and politicians into a chain reaction," says Simon Bensasson, head of the digital cities project at the European Commission.

Bangemann's plan could boost the movement already under way in cities throughout Europe to use high-speed computer networks to gear up local economies for the 21st century. The most advanced projects are in Britain and Sweden, where early telecom deregulation already has forced prices down and sparked innovative services. Other cities are exploring the advantages of the Internet, using existing telecommunications networks and promoting the use of the new technologies.

The community of South Bristol, England, is showing the power of the Internet even in a blue-collar community. Two years ago, the town set up the South Bristol Learning Network. The community's goal was to provide widespread public access to the latest computer technologies.

South Bristol's efforts attracted computer maker ICL, which was seeking to develop new revenues from multimedia. ICL helped the community launch a series of cyberspace workshops on such topics as job retraining and provided a 10-megabit local area network as well as hardware, software, and office space. Over the past 18 months, hundreds of residents of this economically blighted region--many unemployed--have used the free three-hour workshops. As a result of their popularity, ICL now is rolling out the service nationwide and wants to raise $1.6 million for a more extensive broadband network to circle South Bristol.

FREE-FOR-ALL ZONES. The clear demand for telecom services at lower prices has prompted companies to plan major investments throughout Europe. MFS International is plunking down more than $20 million to build fiber networks around Frankfurt and Stockholm. Free-for-all zones "would indeed speed up our investment," says Jo van Gorp, director of European regulation for MFS. The company is already seeing a payoff. News agency owner Michael Bloomberg announced plans in mid-March to expand his Frankfurt operations to take advantage of the new and less expensive services that MFS will provide.

MFS must contend with plenty of competitors in Germany, the world's third-largest telecom market. Bonn is expected to allow pockets of competition ahead of computer deregulation to spur private investment in state-of-the-art networks. Multibillion dollar energy utilities such as Viag and Veba--which own alternative networks--are teamed up with partners like British Telecommunications and Cable & Wireless to compete with Deutsche Telekom in three years.

Backed by Veba, Viag, RWE, Thyssen, Deutsche Bank, and other corporate bigshots, cities like Munich, Nurnberg, Hanover, and Stuttgart are likely to lobby Bonn fiercely to be included in the new deregulation zones. The state of Bavaria already has announced a program to invest $215 million in an information superhighway, with two-thirds of the money coming from private industry.

The local drive to create digital cities may be the unexpected element that finally sets Europe's telecom markets free. Even before the digital city program was announced, more than a dozen municipalities had phoned Brussels to find out how they could join the initiative. Says the EC's Bensasson: "Cities will fail if they don't have competition. They can't wait for 1998." That's what Bangemann is counting on.

The Drive To Free Up Telecom

GET WIRED A European Union initiative will recruit 10 cities or more to volunteer for complete deregulation of all telecom services

OFFER NEW SERVICES Free competition in local voice and network services would lower costs and attract new businesses

SPEED UP DEREGULATION A successful pilot program would encourage other cities to follow and pressure national governments to deregulate faster

DATA: BUSINESS WEEKBy Gail Edmondson in Brussels


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