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With the bundling of services becoming a fairly standard product in digital telecommunications, the entry of newcomers becomes more difficult since a newcomer which wants to provide several services at once has to enter more markets – hence needs more capital and faces higher risks – than in the case of entering a small market niche. Mobile telecommunications traditionally is viewed as complementary to fixed line telecommunications. Liberalization of fixed network telecommunications also occurred in the US in long distance after 1984 and then through the 1996 Telecommunications Act which has opened the local loop to competition.

Moreover, we want to focus on the role of foreign direct investment (FDI) and growth while taking into account the impact of modern communications (section 4. It is shown that FDI positively contributes to a higher gross domestic product in the host country, but not always to a higher national income per capita). Finally, we raise some policy issues. 2 Digital Dynamics and Liberalization of Telecommunications Key ingredients to a modern networked economy are high telecommunications densities and a high user rate of personal computers – the combination of both plus a considerable share of knowledge-based firms should lead to a high user rate of internet users (reflecting the demand side in the net) and a high internet host density (the supply side: read servers operated with the aim of supplying digital information on the net).

The liberalization of telecommunications network operation and voice telephony in the EU in 1998 (UK already under Thatcher in 1984) stimulated competition in telecommunications. Due to EU enlargement in 2004, the EU framework directive on telecommunications in the EU affects 25 member countries directly (EU candidate countries such as Croatia, Bulgaria and Romania plus potentially Turkey will also adopt EU rules in anticipation of membership). Through the European Economic Area Treaty, which concerns Norway, Liechtenstein and Island, there are another three countries involved.

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