It has become commonplace to contrast the speed and alacrity with which the United States has embraced the Internet with Europe's relative conservatism and to marvel at the Americans' appetite for innovation. Europe, it seems, is doomed to play catch-up.

Or is it? No one disputes the leading role that the United States has taken thus far in the Internet revolution. But mobile commerce—that is, electronic commerce conducted on mobile phones—is the next big Internet development. And in mobile communications, the United States trails behind Europe.

There is little doubt that Europe has been laboring under two disadvantages in the Internet world. The first is metered calls. The cost of local calls is included in the flat monthly fee paid by Americans to their telecom suppliers, which means that they get to surf the Internet for no additional phone charge. Europeans, however, pay for local calls by the minute. Even before Americans went on-line, they spent on average about three times longer chatting on the phone than Europeans did.

Europe's second disadvantage has been lack of competition in the telecommunications industry. Recent research to explain the different penetration rates of the Internet in different countries concluded that it is the regulatory environment and its influence on competition that is the single biggest factor—more important than proficiency in English (most content is in English).¹ As a result, in Finland and its neighboring Nordic countries, where competition between telecom service providers has been intense for some time, Internet penetration is higher than it is in the United States. The Finns boast 881 Internet hosts per 10,000 inhabitants, compared with 784 in the United States. Compare that with some European markets where competition is more recent: 26 in Greece, 42 in Italy, and 43 in Spain, for example.

Broadband access is a prime example of how regulation can impede Internet development. High-speed broadband services can be delivered to consumers over the old copper telephone network by installing new electronics in the exchange. In the United States, regulations have forced phone companies to allow competitors to install the necessary electronics; the competitors then use the phone companies' local loop to deliver their own broadband services. This "unbundling" has increased competition and speeded up deployment. By contrast, the deployment of these new kinds of electronics is only now getting under way in Europe.

The Internet has developed slowly in Europe because competitive conditions are unfavorable, not because Europeans are stodgy

Internet development in Europe has therefore been slow, not because Europeans are stodgy, but because the competitive conditions are unfavorable. The truth of this assertion is demonstrated by Europe's lead over the United States in mobile communications, an area in which Europe has the regulatory advantage.

Over a decade ago, European regulators mandated a uniform technological standard for digital mobile communications—GSM (Global System for Mobile Communication)—and they have done the same for the next generation of phones, which will enable high-speed data transmission and a much wider range of multimedia services. The first license for the new standard, UMTS (Universal Mobile Telecommunications System), was granted in Finland last year, and the United Kingdom and Spain are in the process of awarding their licenses. Even before these UMTS networks are rolled out in 2002 and 2003, software upgrades to the current networks will enable data transmission at speeds that are five to ten times that of a normal fixed telephone line.

A single standard is important because it encourages mobile communications: the same phone can make and receive calls in Greece and Portugal. A single standard also creates economies of scale for operators and service providers, which can sell their products to many more consumers. The result has been to speed up the development of mobile technology. Finland's Nokia and Sweden's Ericsson are world-leading handset manufacturers and mobile-equipment providers, and Europe's operators are rapidly developing their mobile portals.

By contrast, US mobile communications have been hampered by incompatible networks and standards. Phones can be useless beyond the local provider's region, and many systems are still of the lower-quality analog variety rather than the digital systems that cover Europe. The United States also suffers from a regulatory quirk that requires the receiving party to pay for mobile calls received. This discourages Americans from giving out their phone numbers and encourages them to switch off their phones, reducing both their use and usefulness.

The sum of all this is higher mobile-phone penetration in Europe: almost 70 percent of the population owns a mobile phone in the Nordic countries and some 50 percent in Italy, compared with just over 30 percent in the United States. Combine this with Europe's advanced level of mobile communications know-how, and it is easy to predict Europe's m-commerce lead.

With these kinds of numbers, mobile systems will not be a niche product. Nor will they simply be another way of accessing the Internet services that are currently on offer. (New technology usually leads people to consider how it can be applied to what they already do. Only later do they think of doing new things.) Instead, new, mobile-specific services will be developed to take advantage of the fact that a mobile-phone user is always reachable (presuming the phone is switched on), that the user's location is known (the network can tell where the signal originates), and that a mobile phone is a very personal device.

Hence, mobile systems are ideal for urgent messages that require a quick response—alerts on the movement of stock prices, for example—and for services that offer advice on how to get from here to there. One idea being developed is "electronic coupons," whereby retailers in a vicinity could send a message offering, say, 50 percent off the price of a beer if the phone user popped in for a drink.

Mobile phones may even end up becoming the transaction machines or the electronic money of the future. Already, experiments are under way in which people pay for goods and services, such as a Coke from a vending machine, by calling a number. And because the phones can transmit infrared signals locally, a user could pay for a newspaper simply by keying in the amount, pointing the phone at the cash register, and pressing a button. In some countries in Southern Europe, users can already take the cards from the backs of their phones and load up with extra credit from their accounts at ATMs.

Because the screen of a mobile data phone is small and traffic volumes are still limited, mobile communications will not impinge on heavy-duty business communications as the Internet has. But for the consumer or worker on the move, the impact of mobile communications could be just as great. Consider this: by 2005 more people in the world will have mobile phones than TVs, let alone PCs, which means that mobile data phones could be the means by which most people discover the Internet and use interactive services. Europe and Japan are the leaders of this particular revolution. The United States lags behind.