The Bureaucrat Nudging Europe onto the Net

EU Commissioner Erkki Liikanen tries to break down telecom barriers and wire the rest of the Continent as fast as his native Finland -- and the U.S.

By William Echikson

In the New Economy, bureaucrats get little respect. Conventional wisdom says they don't create the Microsofts or Yahoo!s that generate wealth and drive innovation. If anything, they place obstacles in the way of growth, particularly in the Old World. So when Erkki Liikanen became the European Commissioner for Enterprise & the Information Society, a position created in 1999, few positive results were expected. "Conventional wisdom is that Europe regulates everything," Liikanen admits.

The 50-year-old Finn is determined to disprove that old assumption. He has succeeded in pleasing free-market advocates by obtaining significant advances in telephone deregulation, and he's also attempting to ward off stifling taxes on Net transactions. But he is hemmed in by the limits of his own bureaucracy, the creaking nature of decision-making in the European Union, and the continuing European tendency to tax and regulate first -- and ask questions later. "Liikanen is enthusiastic and trying to make things happen, but his mandate is limited," says Colin Helmer, a diplomat covering e-issues at the U.S. Mission to the European Union.


  The upshot is that Europe remains far behind America in embracing the New Economy. Since telephone charges remain high, only about 25% of European households boast PCs hooked up to the Net -- about half the percentage in the U.S. As for the dot-com bubble, it had hardly started to rise on Europe's side of the Atlantic before it collapsed.

Nonetheless, parts of Europe are racing ahead, particularly in the far north. Liikanen's homeland is both one of the world's most wired countries and home to mobile-phone giant Nokia, making him ultrasensitive about keeping Europe ahead of the U.S. in the race to develop fast, mobile-phone Internet access. "We must allow more competition and put a strong legal framework to encourage this competition," he says.

Letting the market have its head is not easy in Europe. The European Union has the power to set laws that must be followed throughout the Continent. But most sensitive decisions, including all concerning taxes, must be decided by unanimity among the 15 member states. The European Commission can initiate European legislation -- but Liikanen is only one of 20 European Commissioners. Much of his efforts are spent trying to use his position as a bully pulpit to press member nations to spend more on computers in schools and make other tech investments. Also, Liikanen is a socialist who takes positions on data privacy and e-commerce sales taxes that sometimes infuriate business.


  Yet despite being circumscribed by both his ideology and position, the Finn has scored some successes. Starting in December, European industry ministers agreed to break open the remaining monopolies on local phone networks -- something that Liikanen proposed and for which he lobbied hard. "This was the most urgent issue to complete full telecoms liberalization and bring down the price of telecoms' service," Liikanen explains. "It is crucial for small businesses and heavy Internet users, and will make sure telephone companies don't cross-subsidize low long-distance rates with expensive local ones."

Until now, the last mile of copper wire into homes has remained in the hands of former monopolies such as Deutsche Telekom, France Telecom, and British Telecom. They kept local-phone service prices high and made it impossible for Internet-service providers to offer American-style, all-included monthly fees. "Our hands were tied by the monopolies," complains James Kinsella, chief executive of Tiscali, Europe's second largest ISP with more than 10 million subscribers. Kinsella says new rules should help him offer a single monthly fee for the first time -- and enable the introduction of high-speed broadband services to both businesses and home users. Mobile-phone access to the Internet is another Liikanen interest. In the past year, operators such as Vodaphone, Orange, and KPN have shelled out billions of dollars to win so-called third-generation licenses. And they will need to spend up to $250 billion to build the high-speed mobile networks. The market is spooked by all-too-real expenditures and hazy projections for returns. Investors have driven down former high-flying phone stocks by more than 50% since March. Here, though, he has little power to affect the outcome.


  Despite the risks, Liikanen remains optimistic that the huge fees won't slow deployment of the mobile Internet. "When private operators decide to take an investment, they don't get any revenue unless they roll out networks," he says, "so the business logic is for them to move quickly." Like many Finns, Liikanen is an avid mobile user. When he took a vacation recently on an isolated island off the Finnish coast, news about Finnish Formula One racer Mikka Hakkinen was sent to his mobile phone. He also paid for his rental car via the mobile. "You could even buy coffee with the phone," he says proudly.

Finns drink a lot of coffee, and Liikanen is a patriotic Finn. Step inside his Brussels office, and the dark, heavy, leather furniture found in most European Commission offices is nowhere to be seen. Instead, the office is a picture of functional and elegant Finnish pieces in blond wood and light blue. A charming man who speaks five languages, he puts a guest right at ease as he settles into an easy chair. "My boss is quite easygoing -- and yet he's also quite focused and a fast learner," says his aide, Per Haugaard.

Above all, he has a talent -- rare in Finland, where reserve is the norm -- for personal contacts. When I mention that my wife was born near his hometown of Mikkeli in the middle of Finland's lake district and that her mother was an activist in his Social Democratic Party, he asked for her name and said: "I think I know her." The next day, to make sure, he placed a call to my mother-in-law. "She was lucky to be seated when she picked up the phone or she would have collapsed from surprise," my wife later told me.


  Not surprisingly, the charming Liikanen was a precocious politician, becoming Finland's youngest ever member of parliament at the tender age of 21. He was a Social Democrat and served as the left-leaning party's secretary general from 1981 to 1989. From 1987 to 1990, he was Finance Minister and in line to become Prime Minister. Like most Nordic leftists, Liikanen's socialism is soft. "He believes the information society should include all, rich and poor, that computers should be in schools, but he always is aware of the cost of his initiatives," says aide Haugaard.

Then, abruptly, he left politics, moving to Brussels as ambassador to the European Union. "I was 39 years old and had spent half my life in politics already," Liikanen recalls. "I had to make a change." Liikanen negotiated Finland's entry in 1995 into the European Union and became his country's first European Commissioner. His brief was reforming the commission itself, making its deadening bureaucracy more responsible and transparent. It was a thankless job, one in which he made little progress.

"Most of the employees here asked: 'Why should we bother doing this?'" he recalls of his battles with the bureaucrats. In 1998, a corruption scandal engulfed the commission, and Liikanen himself was accused of helping his wife win contracts. "It was ridiculous. My wife had a contract from the Finnish government, not the commission, and she has had her own career for 25 years," he says. An independent committee of auditors cleared the couple of any wrongdoing, and Liikanen survived to be appointed to his new position.


  Unlike Nordic neighbors Sweden and Denmark, which are skeptical about Brussels' power, Finns enjoy positive feelings about the European Union, seeing it as enhancing their international prestige rather than diminishing their national sovereignty. "Finns are pragmatic: Once they make a choice, it is done, and they move forward," says Liikanen, who finds much opportunity to put the national pragmatism to work in his new position. He would like to see the appointment of a Pan-European telephone regulator, for example. But since member states won't accept the idea, he explains that he has created the second-best alternative, "a committee that oversees national regulators and makes sure they carry out European telecoms legislation."

On the other hand, European governments want to make sure that they collect taxes from e-commerce. That's in sharp contrast to the U.S., where online purchases are tax-free. In response, Liikanen has adopted a policy of "tax neutrality." "I certainly don't want higher taxes on online purchases, and I want to make sure the process of buying online doesn't face any special red tape," he says. If Europeans are to buy more on the Internet, Liikanen believes they will need more confidence in the process. "We must avoid massive junk advertising that upsets people, and we must make sure that the transfer of information to other countries respects certain principles," he says.

To that end, he has banned unsolicited e-mail and is arguing for a law that requires companies to win permission from their customers before passing on personal details. "If I buy a book about the New Economy from Amazon, I don't want them to be able to deluge me with offers from everyone for New Economy products," he says.


  European business also has its concerns. "Liikanen wants to tighten up all these data rules, to the point where it could cause problems with the U.S. and slow up e-commerce," frets Caroline de Cock, a Brussels-based lawyer specializing in Internet issues.

But Liikanen insists that his proposed legislation won't change a data-privacy accord hammered out last year between the EU and Washington. And when some of his colleagues in Brussels proposed going much further -- allowing consumers to sue e-tailers in their home countries -- business leaders were furious because the measure would have left them liable for damages in 15 different nations. Liikanen came up with a low-key solution: an online dispute-resolution system.

In the future, his goal is to construct a single set of rules for e-commerce in Europe, an idea business likes. "Without Liikanen, we would have a situation where France could do one thing and Germany another on data privacy -- or anything else to do with e-commerce," notes lawyer de Cock.

Liikanen won't please all of his European constituents all of the time. But his measured approach to regulating the Internet seems to be doing more good than harm in helping Europe get online.

Echikson covers technology companies for BusinessWeek in Brussels

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