European Consumers Left Off the Broadband Wagon

The high cost of access and an inability to relay the benefits are deterring European consumers from using broadband technologies to access the Internet, according to a report by Datamonitor.

Broadband technologies could help stimulate interest in value-added services such as applications service provision, hosting and e-commerce. In addition to fast access, broadband could give consumers access to enhanced multimedia services that can be offered via high-speed technologies such as films on demand, improved music download capability and the ability to play games over the Web. But most consumers know broadband only as a means of getting faster access and don’t associate all of the potential advantages with the technology.

Of the 51 million Western European households with Internet access, Datamonitor found that just 6 percent have access via broadband. Flat-rate narrowband services will ensure that many users will continue to use dial-up to access the Web. This means that until more broadband-specific services are available, few consumers will migrate to more costly high-speed technologies. A key factor that will influence the rate of broadband uptake will be the ability to relay the benefits that these technologies can provide.

“Service providers must not run before they can walk,” said Datamonitor analyst Caroline Bryan. “To attract a wider residential subscriber base, they need to improve their marketing message to ensure that European consumers understand the added value that broadband can provide.”

Datamonitor predicts that that the Western European broadband access market for both business and residential services will be worth $16 billion by 2006. The ability to access corporate networks and replicate the office environment at home will be a huge driver for the take-up of broadband technologies.

“The provisioning of broadband services for the teleworker will be a ‘killer use’ of broadband technologies across the business sector. At the moment, talking in terms of the ‘killer use’ of broadband technologies rather than the ‘killer application’ delivered over broadband is more appropriate,” Bryan said.

The arrival of broadband services in the residential and business arena has created new revenue streams in this market. ADSL accounts for 70 percent of the market for broadband equipment and will continue to dominate to 2006, generating revenues of over $1 billion. ADSL’s share of the broadband equipment market, however, will decline to 41 percent in 2006 as it faces competition from cable modems, fixed wireless and satellite.

Educating and marketing to consumers are not the only ways to promote broadband adoption in Europe. According to a report by Analysys, the flat-rate Internet access call origination (known as FRIACO), regarded as the best interconnect model to ensure a viable business model for dial-up Internet services, will create the build-up of demand for broadband in Western Europe.

Britain is the only market in Europe where FRIACO-based services are widely available. But continued lobbying by leading ISPs has meant that FRIACO will be addressed by regulators in 10 other Western European countries.

“We believe that FRIACO will have a significant market for at least five years, and that it will not delay, but rather promote, the spread of broadband, by effectively building up and preparing a user base ready to take broadband services,” said Rupert Wood, the author of the Analysys report.

The theory behind this is that FRIACO provides larger and more manageable revenue streams by turning active end-users into customers with subscriptions. FRIACO-based services represent the most effective migratory path towards broadband access, an area dominated by incumbent operators that, ironically, have long resisted unmetered access.

According to Analysys, the overall number of active Internet access accounts in Western Europe is set to grow rapidly from 64 million toward the end of 2001 to more than 110 million by 2005.

Homes in North America are more than four times as likely to be surfing the Net using a broadband connection than those in Europe, according to Strategy Analytics. Subscriptions to broadband Internet service in Europe will rise to only 3.3 percent of homes by the end of 2001, compared to 14.1 percent in North America.

North American consumers interested in broadband have benefited from a strong cable industry, but Europe suffers from a weak cable industry that has provided little competition to telcos. As a result, DSL will capture 51 percent of the broadband in Europe, followed by cable at 40 percent and other access technologies (9 percent).

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