Ben Aris in Moscow -

Hannes Ametsreiter, CEO of Telekom Austria, is what you might call a cyber warrior. What was once a small fixed-line operator catering to the needs of Austrians, the company he leads has grown into a telecommunications powerhouse in Central and Eastern Europe, bringing voice and internet services to these developing markets.

Telekom Austria is in seven Southeast European countries, including Slovenia, Croatia, Serbia, Macedonia, and Bulgaria, as well as Belarus. In all of these markets it is already the market leader, except in Serbia and Macedonia, where it only entered recently and has market shares of 13% and 16% respectively.

Ametsreiter believes that telecoms are one of the major drivers of economic growth. It is hard to imaging doing business in a country where you can't call someone, but the addition of internet and email boosts companies' productivity, contributing to what Ametsreiter estimates is between a fifth and a third of GDP growth.

Nothing epitomises the catching up of the former Eastern Bloc with the rest of the world better than mobile phones. However, as penetration rates across the European continent approach 100%, the game has changed and the new front line is broadband.

Broad gap

Broadband has begun to grow very fast in the last few years, with companies like Multimedia Poland flourishing. Russian President Dmitry Medvedev has made online access a core goal of his modernisation drive and the state launched an "affordable access" programme to provide low-cost internet to everyone in June. "By 2015... 60% of users in the country will have access to broadband internet," Medvedev said at an economic forum in St Petersburg in June. "We have set ourselves an ambitious task of increasing the number of internet users within several years to the level in other developed countries. Maybe, 90 out of 100 of the country's residents [will be internet users] - that is three times the current number."

The trouble is that emerging European countries are not only lagging behind the West in terms of broadband penetration, but they are actually falling further behind. "The gap between GDP in the east and the west is narrowing, but the gap between broadband penetration is getting wider," says Ametsreiter, whose firm recently commissioned a study into the spread of broadband across the CEE region.

Part of the reason is that most of the emerging European countries are still in transition and, Medvedev's call to arms notwithstanding, much of their effort (and money) is still going into building up basic services or fixing crumbling infrastructure. A huge amount of money needs to be invested to bring the broadband infrastructure up to scratch; Ametsreiter estimates about €9bn must be spent over the next five years, but this money will be repaid in the same time by growing GDP. "If the money is not spent, then these countries cannot be part of the knowledge-based society. Economies are not longer just about making things, they are about having ideas and communicating them quickly," says Ametsreiter.

One of the obstacles holding back faster development of broadband is the lack of clear regulation. Private companies are reluctant to commit the billions of dollars in necessary investment until they know what the government's attitude is to a strategically important sector - and this is true both in the east and the west. "If you are going to build a countrywide fibre-optic network, you need clear regulations, but Brussels is still working on it. There is still no national framework for developing broadband infrastructure which will underpin the investment," says Ametsreiter.

Indeed, in this regard the US is leading Western Europe, which in turn is leading Eastern Europe, but all these regions are woefully behind Asia. The penetration of fibre-optic networks that carry the broadband signal in the US is a meagre 4% and only 1% in Europe, but in Asia it is already 40%, says Ametsreiter. And the distribution of broadband, according to Telekom Austria's survey, contains several surprises: Slovenia is ahead of the US in terms of percentage of people connected, while China is ahead of Italy. But the bottom line is that all the developed Asian countries are streets ahead of the countries bordering the Atlantic, which need to act - and act now, says Ametsreiter. "Europe is way behind Asia, which is much better prepared for the future. However, [in Asia] the investment is largely done by state bodies that can simply order the networks to be built; in the West we depend on private companies," says Ametsreiter. "This has become a political issue and our politicians need to move on it now or we will all be left behind."