TIME EUROPE
JANUARY 31, 2000 VOL. 155 NO. 4
PAGE ONE | TWO
Europe's Hi-Tech Edge
That said, the GSM standard offered a one-time advantage. Wireless companies around the world are preparing to adopt the so-called 3G standard (for third generation). Although the phones will eventually work all over the world, there will be three variants of 3G: European (already adopted by Japan and most of Asia), U.S. and Chinese. Acceptance by Japan means the European version already has a head start, so there is a good chance that it will be the one to win out with customers. Says Falk Müller-Veerse, head of European research activities at Durlacher, a research and investment group, "Nokia will continue to be in the driver's seat because they are not following the market, they are making the market."
In addition, the precursor wap phones, which can handle short data transmissions, are already taking off in places like Finland, where users can download short messages like weather reports and market updates. Wold points out that because U.S. companies have just completed expensive investments in networks for current-generation mobiles, there will be no great appetite for massive new spending.
Europe's wireless revolution is having an impact well beyond the phone industry. "Just by taking time out of the economy it makes it more efficient and quicker," says Hugh Jagger of Ernst & Young. Moreover, by freeing up the Internet from PCs, wireless will make e-commerce genuinely mobile, increasing penetration in Europe. The technology will also have many business-to-business uses. "A lot of technologies can be used by paper-and-pulp companies as well as Internet companies," says Jonas Ridderstrale of the Stockholm School of Economics.
Europe Unlimited, a Brussels-based research firm, tracks the growing number of European companies that are winning shares in the global technology markets, creating jobs and wealth with innovative technology, aggressive acquisitions and smart niche strategies. Its latest list shows that 127 of Europe's 500 fastest-growing companies are from the tech sector. These companies boast an average annual growth in revenues of 42% and in employment of about 36%. Among the strongest sectors are smart cards, encryption software, e-commerce software, electronic games and digital television.
The list includes two companies from the smart card sector: Gemplus and ASG, a smaller German firm. These companies are well positioned to cash in on the mobile-commerce craze, says Caroline Martin, an e-commerce analyst in the London office of Datamonitor. So-called SIM cards are already present in all European mobile phones to identify users for billing purposes. Once new phones with wireless Internet access come on the market these smart cards will be used to encrypt a consumer's credit card details and send them securely to merchants over the Internet.
The smart card was invented by a former French journalist and technological autodidact, Roland Moreno, in the 1970s. Initial applications centered on ID cards, but by the 1980s--in another example of state-led adoption of new technology--France Télécom introduced prepaid télécartes that rendered coins in phone booths obsolete. Applications quickly blossomed as the association of Carte Bleue debit cards ordered their banks to fight fraud by issuing only chip-embedded cards, and as France Télécom issued the Minitel with smart card readers to enable online purchase of everything from opera tickets to train reservations--well before anyone had heard of the Internet.
Gemplus' Giry anticipates a global explosion in the use of smart cards. "The potential applications are innumerable and provide almost total security and reliability of identification," he says. Giry explains that the cards themselves are inexpensive to produce, so that the only brake on use has been unwillingness of merchants to invest in readers and communications devices. The countries that have not adopted smart cards have been waiting until losses from fraud and theft start to outweigh the costs of updating hardware.
He believes the U.S. has now reached this point, and anticipates finance companies like Citibank and First USA will follow the recent move by American Express to issue smart cards to their clients, as well as readers for their PCs at reduced prices. Noting Motorola's decision last year to pull out of an already tight global smart card market, Giry expresses confidence that new players will not be able to take on the three French companies that have over 70% of the global production market: Gemplus, Schlumberger and Bull.
Governments are also playing a positive role by helping to jump-start high-tech companies. Germany, for example, held a competition to identify the three top bio-tech "clusters"--areas specializing in the field. The winners were Munich, Heidelberg and Jülich, which each received $25 million to give to start-up companies for pure research. In addition, both the German national government and state agencies pushed start-up financing that matches the risk taken by venture capital firms. They also encouraged the creation of the Neue Markt, a sort of German nasdaq. As a result, there are now more than 80 bio-tech firms in Munich, including Morphosys, which has a library of 10 billion human antibodies. Another recipient, CyBio, in the former East, makes the hardware that drug research companies use to match liquid test substances.
In spite of such successes, Europe's promise will be fulfilled only if its political leaders continue to enact the reforms necessary to make the Continent more competitive. Much has already been done. Governments are ridding themselves of state-owned monopolies, liberalizing trade, and slashing national budget deficits. Germany has promised to cut corporate taxes from 55% to 38.5% in 2001. Likewise, France plans to remove a tax surcharge that will reduce the corporate rate from 41% to 39%.
France, which had made it virtually impossible to fire anyone, now allows limited-duration contracts, a measure that is credited with creating some 300,000 jobs. But there is still need for more measures to loosen sclerotic labor markets and to junk regulations that inhibit entrepreneurship and the flow of capital. France's 35-hour week, while not as bad as many had predicted, was an unnecessary reminder that the country's bureaucrats still believe they should mandate everything down to the cafeteria menu. German Chancellor Gerhard Schröder's decision to bail out the bloated, bankrupt construction company Philipp Holzmann sent a confusing signal.
As the successful application of the GSM standard shows, European governments clearly can play a role in guiding the Continent's economic future. But they will be most effective if they avoid regulations that limit what people can do and instead focus on creating an environment in which some of the world's most innovative people can prosper by taking smart risks and working hard.
Reported by Bruce Crumley and Jennifer L. Schenker/Paris, James Graff/Brussels, Thomas Grose/London and Charles P. Wallace/Berlin
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