Thank you for the introduction. I am pleased to be here because the topic of this conference is of fundamental importance to the future of our economies in Europe and the United States; and it also represents a major opportunity for transatlantic collaboration. The scale of the opportunities and challenges related to the Internet of Things literally makes everything else on the US-EU agenda seem secondary.
Reliance on sensor data to optimize the operation of devices has long been commonplace in industry. What’s new is the degree to which network connectivity, widespread sensor placement and sophisticated data analysis techniques now enable applications to aggregate and act on large amounts of data generated by devices in homes, public spaces, industry and the natural world.
The Potential of the Internet of Things
Connected devices are proliferating. According to consulting firm Frost & Sullivan, there are 9 billion connected things in use worldwide today and there may be between 20 and 50 billion of them by 2020. The vast majority of the data that these objects generate are not captured or examined; the data that are used are mostly for detection and control, rather than optimization and prediction that provide the greatest value. If the data generated by connected objects were captured and used in this manner, a recent McKinsey report estimates a potential economic impact of as much as $11 trillion per year in 2025.
The Internet of Things is capable of delivering significant efficiency gains across a wide range of sectors. Although consumer-facing applications such as personal health monitors garner significant publicity, business-to-business applications such as intelligent manufacturing or logistics support are forecast to generate the bulk (nearly 70 percent) of the value. Even one percent efficiency gains through fuel savings in commercial aviation and gas-fired power plants, or through reduction in system inefficiency in healthcare and rail, or through reduction in capital expenditures in oil and gas exploration, could eliminate up to $150 billion in waste over 15 years. Such gains could boost productivity, along with income and living standards, in the way that the Industrial Revolution and the Internet Revolution did.
Europe and the United States need to translate the promise of this new wave of innovation into reality. Between 1950 and 1969 US productivity increased at roughly 3% per year, before slowing down to half that pace in the following 25 years. Thanks to the Information and Communication Technology revolution the US productivity surged to the prior 3% level. Unfortunately, Europe “missed the train” of the ICT boom: productivitydecelerated from 2.4% to just 1.5% during that quarter decade. But since 2011 both sides of the Atlantic are facing a common challenge of how to boost annual productivity increases above the 1 -1.5% mark.
In the United States, if the Internet of Things could increase annual productivity growth by this amount, then over the next twenty years it could raise average incomes by 25-40 percent of today’s level over and above the current trend.
Europe is well placed to benefit as well: the Internet of Things could add $2.8 trillion to its GDP by 2030. European industry has tremendous technological assets to build on, including leadership in industrial robotics and factory automation, embedded digital systems, enterprise and design software, and 3D- and laser-based manufacturing. It has an installed base of over half a million large machines with rotating parts that lend themselves to efficiency gains.
It is hard to overstate what is at stake: the competitiveness of our economies; our ability to pay for our high standards of environmental health and consumer protections; our ability to fund pensions for our swelling ranks of retirees; our ability to protect our democracies from the attack of populists and demagogues who are increasingly darkening our political landscapes.
Many companies on both sides of the Atlantic are racing to seize the opportunities, and are fundamentally reshaping themselves in the process. General Electric’s CEO, Jeff Immelt, has launched a radical overhaul of GE designed to transform it into a “digital industrial company.” Of course, this means tying the digital and physical worlds more closely together by fitting sensors onto rotating machinery in order to capture, transmit and analyze data to improve performance for itself and its customers; but it also means fundamentally recharacterizing the company and the source of its value generation. As he puts it, a modern locomotive is now a “rolling data center”, not just a means of freight or passenger transportation.
In a recent presentation Immelt noted noted: “If you went to bed last night as an industrial company, you’re going to wake up this morning as a software and analytics company.” GE expects the use of Predix, its software platform for managing and analyzing industrial data, to grow rapidly. A few weeks ago I joined President Obama and Chancellor Merkel at the Hannover Messe – the world’s largest industrial trade show. I heard Joe Kaeser, CEO of Siemens, deliver a presentation that made clear how he shares GE’s conviction about the transformative power of the Internet of Things.
Transatlantic Business Partnerships
At Hannover I saw many examples of how U.S. and European businesses are partnering to reap the benefits of IoT and big data. For example, I saw how IBM and John Deere are piloting new technology in Europe that increases efficiency in the production of client-customized tractors and troubleshoots manufacturing problems. IBM has also teamed up with Siemens to develop a technology-solution that allows building owners to gauge a building’s performance and better forecast operational budgets. It also provides better predictive analytics for fault detection and diagnosis so that potential problems can be addressed before they emerge.
I saw how Microsoft and Rolls Royce are partnering to improve aircraft efficiency and on-time performance through data analytics. Armed with up-to-date information about how an engine is performing during a flight, mechanics are ready to start on repairs as soon as the plane gets to the gate. Microsoft and Italian firm Camozzi have partnered to develop predictive maintenance solutions that allow textile firms to monitor machines around the world remotely and to better predict maintenance needs for optimal performance.
In Davos earlier this year I heard AT&T CEO Randall Stephenson speak about how he has transformed the business from a traditional telephone and cellular provider to a comprehensive Industrial Internet solutions company. AT&T is now working with Danish firm Maersk, the world’s largest shipping company, to track and monitor the condition of 280,000 refrigerated shipping containers with perishable goods as they move around the globe. AT&T is providing similar solutions for truck fleets: 2 million vehicles are now on the company’s network, enabling managers to monitor exactly where every asset is located and how it is being used.
Policies to Promote IoT on Both Sides of the Atlantic
So clearly the Internet of Things offers huge potential and businesses on both sides of the Atlantic are racing to capitalize on it. Policymakers bear significant responsibility to establish a regulatory context that facilitates the Internet of Things, while dealing with key economic and legal issues, including data privacy and data security, intellectual property rights, legal liability for the bad decisions of automated systems, the displacement of certain manual work by greater automation, and the risk that social and economic inequalities will exclude certain groups from the benefits of accessing data.
Both the U.S. and the EU are addressing the promise and challenges of self-driving cars. In January, the Obama administration laid out a plan to help create consistent state regulations on autonomous vehicles across the United States and speed along testing of such vehicles.
Similarly, in April the transportation ministers of the 28 EU member states and the European Commission committed to support self-driving vehicles and to work on developing common traffic and transport rules and a common digital communication system, so that cars in Europe can “talk” to one another and travel seamlessly across national borders.
And both sides of the Atlantic are investing in Smart Cities, where digital technologies provide better public services for citizens, better use or resources and less impact on the environment. This focus is appropriate in light of the fact that nearly 70% of the global population will live in urban areas by 2050.
To realize the full economic potential of the Internet of Things, the U.S. and the EU must also adopt policies that support the free flow of information, ideas, products, and services, [especially the sharing and reuse of data], while respecting the rights of creators, innovators and inventors. We must work together to resist calls for new rules that would impose content controls, diminish intellectual property rights, or require data localization. We should be cautious about regulating on the basis of speculative concerns, rather than known, demonstrated risks.
Failing to stop such calls could endanger the open Internet model, impede innovation, and hamper the free flow of data all of which have been at the core of the transatlantic digital economy. We believe that the Free Flow of Data Initiative that is being developed within the framework of the Digital Single Market is an important step and a policy that should logically be extended to ensure the free flow of data not only within the EU but also between the EU and the U.S.
The U.S – EU Information Society Dialogue is one way the U.S. and the EU collaborate in developing policies to grow the digital economy. The next ISD will take place in Washington, DC at the end of June and will be co-chaired by Commissioner Gunther Oettinger and Under Secretary of State for Economic Growth, Energy, and the Environment Cathy Novelli. This year, we will discuss the advancement of 5G technology, information and communication technology standards development, digitalization of industry, Internet governance, and upcoming EU Digital Single Market initiatives. The ISD will also include a robust exchange of views with industry stakeholders.
The ISD is complemented by the Innovation and the Investment in the Digital Economy Dialogue, co-chaired by Commissioner Andrus Ansip and Commerce Secretary Penny Pritzker, as well as by the U.S.-EU Cyber Dialogue, co-chaired by Joelle Jenny Jenny at the External Action Service and Christopher Painter at the Department of State. These dialogues each contribute in different ways to the overarching goal of developing a coordinated U.S.-EU approach to policy-making that will create the necessary conditions to maximize the benefits of the data revolution for the transatlantic economy.
Today, the United States and Europe are at a crossroad as we work to build the ecosystem that will be necessary to capture the full economic value of connected technologies. To succeed the U.S. and EU must work together and lead the world in development and adoption of IoT- based technologies and solutions.
There are many challenges ahead, but one is particularly significant. The IoT ecosystem will employ hardware and software from many different vendors. The ability of these devices and systems to work together is critical to realize the full value of IoT applications; without interoperability, at least 40 percent of potential benefits of the Internet of Things will not be realized. It would be detrimental to tie the IoT ecosystem prematurely to burdensome or conflicting standards coming from different jurisdictions, particularly those of a one-size-fits-all nature.
Collaboration in the development of international standards enables technological innovation by defining and establishing common foundations upon which product differentiation, innovative technology development, and other value added services can be developed.
This collaboration is possible when standards are developed in organizations that are transparent in their decision making and open to participation by all interested stakeholders. The United States supports stakeholder-driven development of open and voluntary standards, private sector-led with active government participation. This will lead to standards that meet the needs of industry and government.
We must not approach standards on a country by country or regional basis or with a view to creating a competitive advantage for national champions as this would hamper interoperability and product performance, hurting consumers. We need international standards, so that manufacturers of all sizes and nationalities will not incur the significant additional costs associated with creating different versions of the same product for different markets.
And we need to allow for input of all experts, regardless of where they are based. International standards are particularly necessary for digital economy technologies given the breathtakingly rapid pace of innovation.
The U.S. and the EU are natural partners in driving the IoT agenda: we have the skills, the technology and the industrial base to drive a third innovation revolution, following the industrial and ICT revolutions. A main focus of our transatlantic agenda must be to analyze the prospects and challenges together, as well as to implement complementary solutions.
 AT&T PRNewswire, February 22, 2016.
 “The Internet of Things: Mapping the Value Beyond the Hype,” McKinsey Global Institute. June 2015.
 GE, “Industrial Internet: A European Perspective,” June 2013.
 Ed Crooks, “General Electric: Post-Industrial Revolution,” Financial Times, January 12, 2016.
 See Daniel Castro and Joshua New, “10 Policy Principles for Unlocking the Potential of the Internet of Things,” Center for Data Innovation, December 4, 2014, and Joshua New and Daniel Castro, “Why Countries Need National Strategies for the Internet of Things,” Center for Data Innovation, December 16, 2015.
 United Nations, 2014 Revision of World Urbanization Prospects.
 “The Internet of Things: Mapping the Value Beyond the Hype,” McKinsey Global Institute. June 2015.
 “Advancing the Internet of Things in Europe,” Commission Staff Working Document, agrees that standardization is “the critical element to deliver a single market for IoT where any device can plug and play anywhere…open standards are regarded as a solution in the IoT landscape because of their net positive effects in regards to large scale deployment and widespread adoption…”