Repeat after me: 'It's the digital economy, stupid'
Ireland's economy can be kickstarted, according to UPC boss Dana Strong -- but only if we empower more small and medium sized enterprises to go online to create wealth and jobs
Before your eyes glaze over, this is not all about the various merits of fibre optic cables, network routers or modems. Instead, it concerns us all and our way of life for the future.
Broadband -- its availability and the way we will use it to enhance our lives -- must involve us all. The availability of high speed broadband has long been high on the Government's agenda and is the focus of much debate among business owners and consumers alike. Why it is so important and the role it has to play in Ireland's economic recovery deserves consideration.
A recent study by McKinsey Global Institute came up with surprising findings and has an important message for Ireland. It examined the internet economies of the G8 nations (Canada, France, Germany, Italy, Japan, Russia, UK, US) and also Brazil, China, India, South Korea and Sweden.
While the proportion of overall GDP accounted for by the internet is relatively small in these countries -- it averages 3.4 per cent -- it has become a critical element of economic progress. In the five years 2004-2009, its contribution to economic growth in the more mature economies studied was 21 per cent.
Most surprising is the fact that the majority of the economic value that the internet creates falls outside of the tech sector. According to the study, companies in more traditional industries capture 75 per cent of the benefits.
It is also a huge engine of employment growth. Among 4,800 SMEs surveyed, the internet resulted in the net creation of 2.6 new jobs for each lost to technology-related efficiencies.
The employment opportunities are particularly important for Ireland. It is the SME sector that is responsible for the vast bulk of employment (over 90 per cent of all jobs) in the country. International evidence shows that SMEs with a strong web presence grow twice as quickly, export twice as much and create twice as many jobs as those that have a minimal web presence.
These findings show economic benefits of the internet are not restricted to the information, communications and technology (ICT) sector. Nor is the benefit solely in economic terms. It is also a critical enabler of inclusion across all socio-economic groups.
So, given its importance, how does Ireland fare?
Starting with infrastructure, the republic has made significant progress in the past few years. I recently became aware of some surprising statistics about our performance. We are ranked an impressive seventh globally in average download speeds -- three times faster than the global average and significantly better than the United States, which is ranked 13th.
In Europe, we are the third fastest, behind only the Netherlands and Switzerland. These figures were provided by the most recent quarterly State of the Internet report by the global cloud networking company, Akamai. They are based on real connection speeds of millions and millions of connections recorded by Akamai's software for monitoring internet conditions.
Additionally, the 2011 international Solon Report compared availability of superfast broadband services (speeds of 100Mb and more). This report covered 11 European countries. If you place Ireland's network availability into this league table, it shows that, with 34 per cent of Irish households able to receive 100 megabit speeds or higher, Ireland ranks above Switzerland (33 per cent), France (15 per cent), Spain (18 per cent), Italy (9 per cent), and Austria (26 per cent), though well behind Holland (90 per cent), Belgium (60 per cent) and the UK (50 per cent).
In terms of infrastructure provision, UPC may have a unique insight into capabilities here. It has been the only significant investor in high speed broadband infrastructure in Ireland in recent years. By this year's end, we will be offering 100 Mb speeds to 610,000 Irish households as a result of our €500m investment.
This means that more than two-thirds of UPC households can now receive this 100 megabit service. Beyond this, the signs are that more in the industry will invest heavily in high speed broadband infrastructure in the next few years. Eircom is already doing so and the upcoming spectrum auctions will allow new mobile broadband technologies in the near future.
Importantly, the multi-million investments in the National and Rural Broadband Schemes by the Department of Communications Energy and Natural Resources are also meeting a key need across areas less well served by private enterprise. All of this, plus projected investment plans by the industry, means that Ireland will fully meet its 2013 EU Digital Agenda targets and will meet up to 90 per cent of its 2018 targets. So, while the job isn't complete, and meeting 2020 targets is a genuine challenge, we should recognise the real progress that has been made.
While infrastructure availability needs to continue, awareness and usage also needs to be a focus. It is estimated that 3 per cent of Ireland's GDP comes from the internet economy. This is behind the EU27 average of 3.8 per cent and the UK, where over 8 per cent of its GDP comes from the internet economy, so there is much room for improvement.
To start reaching the European average, micro enterprises and small and medium businesses need to accelerate their use of the online marketplace.
Millions of people in Ireland shop on the internet but a large part of that spend is going overseas as UK, European and US websites target Irish consumers. If we allow this to continue, we risk very real damage to our economy.
It is estimated that 30,000 Irish businesses do not have a website. We need to accelerate the number with e-commerce capability so that they can create additional wealth and employment for this country.
What needs to be done?
The recommendations of the Next Generation Broadband Taskforce have recently been published. This is a welcome kickstart to a conversation that needs to be had across all sectors of society.
I believe that if we are to harness the potential of advanced broadband for economic growth and jobs then we must focus on:
• Driving the economic growth engine around SMEs by empowering them to get online. We cannot continue to have large swathes of online purchases being made on foreign websites. More needs to be done to provide a 'wake-up call' to Irish businesses.
• A system of grants or tax breaks towards the cost of IT investment or the funding of internship programmes for IT-savvy graduates to help SMEs build their online presence. A target should be set for each County and City Enterprise Board in terms of the number of online training courses provided annually to micro enterprises and SMEs in their areas.
• Continued investment in next generation broadband must be a priority. This will require the creation of a positive environment for continued private sector investment in broadband. To further aid this, we also need to examine the current network availability and identify how we can get people to benefit from the infrastructure already in place.
• One of the biggest advantages of this technology-driven era is its ability to break down barriers and introduce greater equality across society. We cannot afford to allow older people, or those who are economically challenged, to get left behind. Many companies are already actively engaged in digital inclusion initiatives but it may also require government aid to ensure that all sections of our society realise the benefits of digital inclusion.
A public consultation around the Next Generation Broadband Taskforce Report is underway and everyone with an interest in this area should take part. The recommendations, if implemented, will facilitate Ireland becoming one of the world's leading digital economies over the next decade.
Failure to achieve the goal of establishing a digital economy could halve our rate of jobs growth, severely curtail economic growth, and hamper efforts to improve competitiveness. Success can lead to a transformation in our fortunes and restore the health of the economy.
Dana Strong is chief executive of UPC Ireland
Sunday Indo Business