2006-2007 Western European Broadband Market

Executive Summary

This report covers developments in Western Europe's sophisticated broadband market. It presents the latest statistics on both a regional and national level, assesses the relative strengths of the principal delivery platforms, and analyses market conditions which will affect how broadband is likely to progress to the end of the decade. In 2007, cable consolidation in a number of important markets will strengthen the cable operators' position against the dominance of DSL, while large-scale deployments of faster ADSL2+ networks throughout the region will drive broadband into a growing number of homes as entertainment becomes increasingly dependent on IP-delivered content. In addition, municipal and national governments are increasingly encouraging broadband infrastructure development to secure local jobs and to improve social access to a range of services including education and health care. Some of the markets covered in this report are :

Finland

Finland has traditionally been an early adopter of technologies, and consequently broadband penetration is far ahead of the EU average. DSL subscriptions account for about 78% of access lines, while cable has 13% market share with the remainder made up of broadband powerline and WLAN connections. Internet growth has been driven by some of the lowest access prices in Europe: the average price reduction of the major broadband operators in 2005 and 2006 was about 40% annually. DSL makes up about 85% of all broadband connections, while cable has increased its footprint. The popularity of DSL is partly explained by fast download speeds as the main providers continue to invest in network upgrades. The government has determined that at least 90% of all Internet subscriptions should be broadband by the end of 2007. While broadband availability has become near-universal the focus has shifted to the quality and speed of connections: about 30% of broadband subscriptions have a transfer speed of 2Mb/s or higher, and the government wants to see the majority of connections to reach at least 8Mb/s by the end of 2007.

France

Impressive broadband growth in France has been fuelled by demand for high bandwidth applications. Rapid infrastructure upgrades have been made possible by a pro-competitive regulator, by France Telecom's NeXT program, and by the substantial fibre deployment resulting from municipal network builds and the efforts of alternative operators such as Iliad. DSL services from France Telecom's network are available to 98% of the population though broadband via cable is only available to around 6.3 million households, representing about 16 million inhabitants or 26% of the population. The country is expected to show some of the fastest broadband growth in Europe during 2007.

Germany

Germany has the second largest Internet and broadband market in Europe. Nevertheless, though faster broadband services have fuelled consumer take-up, the country's broadband penetration is below that of benchmark countries in the EU, while cable accounted for just less than 3% of total broadband subscribers despite the extensive cable networks. However, during 2006 the cable sector was further consolidated through mergers and acquisitions and operators have positioned themselves to compete with Deutsche Telekom through network upgrades and triple play offers. Municipal networks such as NetCologne offer effective alternatives to Deutsche Telekom, resulting in the incumbent being squeezed out of a growing number of communities. Nevertheless, Deutsche Telekom dominates through its T-Online ADSL service, and the incumbent's newly won right to prevent competitors access to its VDSL network may slow broadband development during 2007. DSL accounts for some 95.5% of connections, while Deutsche Telekom has around 67% market share.

Ireland

Ireland's Internet and broadband markets are underdeveloped by European standards, partly due to high wholesale costs, lack of competition, high retail prices, limited coverage in many non-urban areas, and general low market awareness. Many of these issues were addressed in 2006, while pressure from operators and the media in tandem with government efforts to improve local loop unbundling and wholesale access will ensure that Ireland catches up with the EU average in coming years. Broadband access is dominated by DSL, which accounted for about 74% of total subscribers in 2006, with other platforms - fixed wireless, cable and satellite broadband - accounting for the remainder. Access prices fell substantially during 2006, partly as a result of competitive pressure on the incumbent, eircom, yet even so in early 2007 Ireland remains one of the most expensive countries in the EU for 2Mb/s SDSL services, and data speeds remain comparatively slow. The geographic reach of cable companies such as ntl and Chorus has increased considerably, and promises to be sufficiently extensive by the end of the decade to compete effectively with the main DSL providers.

Italy

The Italian broadband landscape differs from other major European countries because of the absence of cable infrastructure, yet nevertheless a high take-up of LLU has promoted considerable competition within the DSL sector, while fibre services are among the best-established in Europe. Broadband adoption in Italy reached almost eight million in 2006, representing about 35% of all households.

Netherlands

The Dutch broadband market is the strongest in Europe and benefits from a concentrated demography, economic prosperity and large-scale government and municipal investment in broadband infrastructure, as well as the participation of housing associations and commercial enterprises taking advantage of falling deployment coats and popular demand for high speed networks. The country has comprehensive DSL and cable networks, while the incumbent operator KPN has embarked on an ambitious all-IP network deployment, with the keen approval of the regulator which sees the move as a way to encourage inter-platform competition and further investment. By September 2006 three of the largest cable operators were under the umbrella of the same parent company, affording possibilities for synergies and co-operation to present a stronger competitive force to KPN. Early in 2006 many cable operators had co-operated in linking their networks to provide merged VoIP between their subscribers and thus by-pass interconnection charges on KPN's network. Bandwidth averages of about 2.8Mb/s are expected to approach 10Mb/s by the end of 2007, furthering the country's status as a model for other states in the EU.

Norway

Telenor and Tele2 are the leading data service providers in Norway. All forms of broadband access are available, though DSL accounts for about 80% of all connections. Norway's topography is particularly suitable for wireless access, and the country is the leader in the EU in this sector, with a wireless broadband market share of about 2%. More than 50 of Norway's local municipalities and local hydroelectric power companies are broadband providers.

Spain

Spain's broadband penetration is below the European average, yet the country has one of the largest populations in Europe and a potentially huge broadband market. One of the brakes on consumer take-up has been high access prices - about 25% above the EU average - and relatively slow data speeds. This prompted the regulator in mid-2006 to oblige the incumbent, Telefnica, to lower its wholesale prices and allow wholesale access to its DSL services. Stronger take-up of Local Loop Unbundling promises greater competition and lower consumer prices in 2007. Telefnica commands a 55% share of all retail broadband subscribers, while a further 15% of users take services via rival ISPs offering one of its wholesale products. Competitive pressure has mounted from companies such as Jazztel and the subsidiaries of France Telecom and Deutsche Telekom: the alternative operators' broadband retail market share had grown to about 38% in terms of revenues by the end of 2006.

Sweden

Sweden has one of the most developed Internet and broadband markets in the EU, with continued migration during 2006 from dial-up to various modes of broadband access. Broadband data speeds are also among the fastest in Europe, with an increasing proportion of subscribers adopting 10Mb/s services. Metro Ethernet, fibre, satellite, and WLAN access technologies are also available. Some 70% of connections are DSL, 15% cable and 15% fibre, Wireless Local Area Network (WLAN) and other technologies. Just over 1.7 million households had broadband subscriptions in early 2007, a 40% year-on-year increase. Connections with at least 2Mb/s constituted at least half of all subscriptions.

Switzerland

Switzerland has one of the highest Internet and broadband penetration rates in Europe, and ranked fifth in OECD countries in 2006. Broadband has replaced telephone communications as the main growth area since 2004, with DSL the principal access technology. The incumbent's Bluewin DSL product, available to about 98% of the population, dominates the market, while plans for municipal fibre in main cities such as Zurich may open the gates for widespread FttH in coming years. There are also about 60 regional cable operators adding to the mix. Overall, broadband offerings hardly changed during 2006: data rates did not increase substantially since most operators have been slow to upgrade to faster services. Nevertheless, considerable changes are expected in 2007 as competition from Cablecom has encouraged Swisscom to modernise its network: it planned to leapfrog ADSL2 and introduce VDSL during the year, providing transfer rates of up to 20Mb/s. Switzerland is also a pioneer in Europe in making broadband a Universal Service.

The UK

The UK has a comprehensive broadband infrastructure, served by a fiercely competitive DSL and expanding cable market. The broadband market has been characterised by falling prices and increasing consumer migration to services of at least 2Mb/s, while 10Mb/s will become increasingly common in 2007. Nearly all exchanges have been upgraded either by the incumbent or through local government initiatives, while Local Loop Unbundling has shown spectacular growth, allowing more than 200 service providers to compete with BT. Cable networks pass about half of all UK homes, while Fixed Wireless Access (FWA) offers broadband to around 13% of the UK, and has the potential to reach 99%. The total number of fixed exchange lines in the UK continues to fall, reflecting growth in mobile-only homes and a reduction in the number of second lines for Internet access. Drivers for broadband growth include lower prices and faster speeds as the strong consumer demand for triple play services has encouraged operators to invest in network upgrades.