Filling the Gaps: EU Sectoral Policies for Digitalisation and Advanced Technologies
Diving deeper into “The Future of European competitiveness”, the 2024 report prepared at the request of the European Commission by Mario Draghi, former President of the European Central Bank and former Prime Minister of Italy
Part B of the report presents an in-depth analysis and recommendations of both sectoral policies and horizontal policies. I am truly impressed by the depth of research and precision. Perhaps I was naive, but I never anticipated seeing so many of the issues I encounter in my daily work described with such accuracy. I had assumed they would feel distant from our challenges, but that couldn’t be further from the truth, at least for the digitalisation and advanced technologies part, on which I focused. The report includes other sections dedicated to energy, critical raw materials, clean technologies, automotive, defence, space, pharma and transport. It took around 2 years to prepare.
“The EU’s competitiveness will increasingly depend on the digitalisation of all sectors and on building strengths in advanced technologies, which will drive investment, job and wealth creation.” However, the report states, “seizing the benefits of digitalisation and advanced technologies for the EU’s competitiveness requires state-of-the-art infrastructure (including ubiquitous, high-speed broadband networks and cloud-computing capabilities) and strengthening employees’ and citizens’ digital skills”.
Currently the amount of EU data transferred to third countries is estimated at 90% with a long term risk of loss of industrial know-how.
Digital skills, the report explains, are essential for maintaining quality jobs, as rapid technological advancements demand continuous evolution of analytical, critical thinking, and leadership abilities—extending beyond just technical education. “Digitisation of public services can stimulate gains in efficiency, reach and depth in a fair and just way for all EU citizens.”
“70% of the new value created in the world economy in the next ten years will be digitally enabled” but the EU relies on third countries “for over 80% of its digital products, services, infrastructure and intellectual property.”
In terms of advanced technologies, the report highlights 3 major areas where the EU tech players currently lack the scale to support research and development: high-speed/capacity broadband networks, computing and AI, and semiconductors. As someone that works for a tech communications company, partners with telecoms and is currently assigned to managing a cloud computing product, these areas hit really close to home.
The starting point for high-speed/capacity broadband networks is that today, the EU has dozens of telecom players serving around 450 million consumers, “compared with a handful in the US and China, respectively.” The report suggests that the EU is above the optimal number. It is regulation and competition policy that have disincentivised consolidation, encouraging the presence of numerous smaller players in each market. To put it into perspective, the total number of regulators active in digital networks across all Member States exceeds 270.
“The total market capitalisation of the EU’s telecom sector fell by 41% over from 2015 to 2023 to reach around EUR 270 billion, compared to over EUR 650 billion in market capitalisation from US telecom operators.” 50% of rural households in Europe are not served by advanced digital access network infrastructure.
Besides the need for substantial investment in private infrastructure and commercial initiatives, the report pinpoints two technological developments that are strategic opportunities to telecom providers: edge computing as an alternative to connecting to the remove cloud (the distribution of computational tasks across smaller nodes closer to the customer) and open network services (the opening of network capabilities to developers and innovators using Application Protocol Interfaces or APIs). I believe there are ongoing initiatives planned to bring Network APIs to the mass market, it was so refreshing to see them highlighted here as well.
One of the report's most significant short-term proposals is the implementation of 'passporting' for B2B services, allowing operators in one Member State to provide services across the entire EU. This measure is crucial not only for delivering cutting-edge communication-as-a-service but also for advancing progress in the report's other key areas. Successfully implementing this within three years would have a profound impact.
The Computing and AI part was the most interesting to me. The EU, the report confirms, is losing ground. “The three US-based cloud ‘Hyperscalers’ (Amazon Web Services, Microsoft Azure and Google Cloud) account for 65% of this market. EU cloud providers’ share decreased to under 16% in 2021, with the largest operator (DT) capturing only 2% of the EU market. In addition, most EU providers offer basic services in the form of infrastructure-as-a-service (IaaS) and mostly depend on hosting or re-selling hyperscalers’ platform services (PaaS).”
Europe faces the risk of becoming entirely reliant on infrastructure and AI models designed and developed abroad, both for general-purpose AI and for specialised applications in critical EU sectors such as automotive, banking, telecommunications, healthcare, mobility, and retail. “In 2023, an estimated USD 8 billion in venture capital investment was made in AI in the EU, compared to USD 68 billion in the US and USD 15 billion in China.”
The former PM emphasises that the EU must aspire to lead AI development tailored to key sectors, reclaim and safeguard control over critical data and cloud services, and establish a strong financial and talent ecosystem. In the short term, this requires implementing a unified EU-wide policy with residency requirements for public administration cloud services and robust security protocols for collaborations between private providers and hyperscalers.
To enhance the EU’s computing infrastructure, he plans to develop and fund a comprehensive strategy, linking public and private computing demands.
Statista Technology Market Insights projects the EU cloud market size will reach EUR 196 billion by 2029 (with 45% allocated to Software-as-a-Service, 30% to Platform-as-a-Service and 25% to Infrastructure-as-a-Service). You can find the full stats here.
Last but not least, on semiconductors, the report confirms the EU has key strengths in selected segments of the chips market, but again, its position is strongly dependent on non-EU players. “The US has specialised in chips design, Korea, Taiwan and China in chips manufacturing, and Japan and some Member States (e.g. the Netherlands) in key materials and equipment - optics, chemistry and machinery.” The EU and US are dependent on Asia for 75% to 90% of chips production.
“Around EUR 100 billion of total investments in industrial deployment have been announced in the EU since the proposal for a European Chips Act, but the majority is supported by Member States under State aid control, with only a minimal portion of EUR 3.3 billion coming from the EU budget. By contrast, the US CHIPS Act allocated EUR 52 billion in federal subsidies alone to research and manufacturing, not including state-level subsidies as well as tax credits and loans. Specifically on R&D, the EU has allocated approximately EUR 5 billion to strengthen its chips ecosystem, compared to the USD 11 billion allocated by the US.”
The proposal for semiconductors includes a revised EU Chips Act with key actions for the short-term horizon (1-3 years) that include developing a new EU semiconductor strategy supported by a dedicated budget, promoting consolidation and leadership in manufacturing equipment, and establishing an EU-wide streamlined permitting framework for chips.
Additionally, the report suggests introducing a semiconductor-focused component within the 'Tech Skills Acquisition Programme' to attract, train, and retain top talent in advanced electronics and semiconductors. It calls for funding innovation and testing labs near existing EU centres of excellence, along with subsidies for foundries specialising in strategic segments where the EU has a competitive edge.
Sounds like a lot of work! Inspiring, impactful, needed work! Can’t wait to delve deeper into the verticals. Stay tuned!
For those interested in exploring further, the full report is accessible at:
