Asian Internet Market to Surpass United States

Led by China and Japan, and an emerging market in India, the Asia-Pacific region will overtake the United States as the world’s largest Internet market within three years, according to research from Gartner’s Dataquest.

Dataquest analysts project Asia-Pacific to have 183.3 million Internet subscribers in 2003, compared to 162.8 million in the United States. Western Europe will have an estimated 162.2 million, putting it neck-and-neck with the U.S. market. At the end of 2000, Asia-Pacific (which includes Japan) had 78 million subscribers, an increase of 65 percent over the 1999 figure of 47.4 million subscribers. By 2005, Dataquest forecasts 248 million subscribers in the region.

At the end of 2000, the country with the largest subscriber base in Asia-Pacific was Japan with 24.4 million, followed by South Korea with 16.7 million, China (14.6 million) and Taiwan (4.6 million). Together, these top four countries accounted for 76 percent of the region’s Internet subscribers in 2000. Dataquest forecasts that in 2001 China will overtake South Korea as the second-largest market in the region, but it will not catch up with Japan until 2003. By 2005, Japan and China combined will have approximately 151.5 million subscribers, representing about 61 percent of the total Asia-Pacific subscriber base.

The country that can expect the highest growth rates in Asia-Pacific region is India. From 2001 to 2005, Dataquest expects India to enjoy average subscriber growth of 44 percent a year. At that point, India will have 21.3 million subscribers, making it the No. 4 Internet market in the Asia-Pacific region after China, Japan and South Korea.

In terms of access revenue generated by these subscribers, Asia-Pacific will still lag behind the United States by a big margin for at least another five years. By 2005, the Asia-Pacific Internet access market will be worth $17.2 billion, whereas the United States will still have a distinct lead with $21.2 billion.

“This differential between subscribers and access revenue illustrates a major reason why Internet use is still growing rapidly in Asia-Pacific; the region has some of the lowest Internet access rates in the world, and prices are still coming down as result of competition or, in some cases, government direction,” said Andrew Chetham, senior analyst for Gartner Dataquest’s Asia-Pacific Telecommunications and Networking group. “There is a clear pent-up desire by vast numbers of people in Asia-Pacific to go online. Falling prices and improved infrastructure, especially in countries with big populations like China and India, are a recipe for encouraging large numbers of new subscribers.”

According to Yankee Group’s report “Residential Internet Service Providers in Japan”, more than 20 percent of all Japanese households had an Internet connection at the end of 2000, showing that Internet use has steadily begun to spread among residential users. Compared with 50 percent Internet penetration in the United States, the business potential for the residential Internet markets in Japan remains high.

Many Japanese ISPs have introduced fixed price services, and the major ISPs have dropped the fixed fee to around 2000 yen ($17) a month. However, the total cost to access Internet is still high. Large numbers of home users in Japan still use ordinary phone lines to connect to the Internet, and are therefore dissatisfied with the high telephone charges.

Another potential bump in the road to Internet dominance for the Asia-Pacific region is the soft global economy, which took a toll on PC sales in the region in the second quarter of 2001. According to preliminary results from IDC Asia/Pacific, the Asia-Pacific (excluding Japan) PC market reached 5.19 million units in Q2 2001, representing 8 percent year-on-year growth from 2000, but flat growth compared to the first quarter of 2001. The worsening external conditions took their toll on the region’s economies as many companies and consumers alike adopted a “wait and see” approach to PC purchases, IDC found. Some markets were dealt an additional blow of weakening currencies, further dragging down PC sales.

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