TELECOMMUNICATIONS NETWORK DEVELOPMENT AND INVESTMENT IN THE EUROPEAN UNION European Investment Bank Projects Directorate Industry II JACQUES GIRARD

Sector developments The telecommunications service industry is growing very rapidly, wiith average annual growth rates of 10% during the last five years. These growth rates should continue for the next five years. This increase of activity is a result of the interaction of technological improvements (microelectronics , optical fibres) and institutional changes (liberalisation). Technological advances in microelectronics and the development of optical fibre cables have dramatically increased the processing capacity of telecommunications networks. The Plain Old Telephone System (POTS) is becoming an interconnected information processing system and the basic building stone of the information society. It has become evident that only widespread liberalisation (i.e. privatisation and opening up to competition) would carry the right incentives for modernisation of what used to be profitable but sleepy state monopolies. The number of lines in the EU fixed telecommunications network reached some 180 million by end 1995, or 48 lines per 100 inhabitants. In addition, there were 19 million mobile telephone subscribers. Teledensity, the sum of fixed and mobile lines, has therefore reached 53 access paths per 100 inhabitants. Even though universal service seems to be achieved, i.e. neariy every household is equipped with a telephone, there are still large differences across EU-countries in terms of penetration and modernisation of the networks. In any case, the main source of growth in the future will not come from an increased subscriber base, but from increased services that will be feasible on a modernised network. In 1995 the telecommunications service market amounted to ECU 143 billion, of which ECU 17 billion (12% of the total) came from the mobile sector. The latter is expected to exhibit very high growth i.e. some 15 to 20% per year, over the next 5 years, and could represent up to 25% of the total revenue by the year 2000. Investments The expansion and modernisation of the fixed network has required huge investments, which have peaked during the years 1990-1994. In 1995, operators in the EU-countries invested ECU 31 billion, or some 25% of their turnover. For the years 1996-2000, some ECU 87bn will be invested by télécoms operators to complete the expansion and modernisation of the fixed network in the EU. The mobile telephone sector alone is expected to invest about 31 bn ECU for the years 1996-2000. This would bring the penetration rate of mobile telephones in the EU from 5.6% in 1995 to 17.2% in 2000. In …