Western European residential broadband uptake has exploded in the past two years: adoption grew 81% in 2003 and continued to surge in 2004, clocking 28% growth in the first six months alone. By 2010, European broadband penetration will reach 41% (72 million households), which equals 67% of those online that year. At the same time, incumbent telcos are gradually seeing their broadband dominance being eroded by continued intense competition, market regulation, and other market forces. These are some of the key findings of the just-published Forrester Research report ¿European Residential Broadband Forecast: 2004 To 2010. “Unlike most national and Pan-European data sources ¿ such as ECTA, the European Commission, and national regulators ¿ this report excludes business broadband lines and thus analyzes ¿pure¿ residential broadband market numbers.
Lars Godell, Principal Analyst at Forrester Research, states: ¿By 2010, residential broadband penetration will top 45% in the Netherlands and Scandinavia thanks to their large proportions of online consumers, competitive markets, and relatively low broadband prices. The Netherlands will top the 2010 country charts with 54% penetration, while Europe¿s Big Five economies will see penetration between 35% and 45%. The Big Five countries fall into the second tier due to a mix of lower overall online penetration and higher broadband price premiums. Portugal, Greece, and Ireland continue to lag ¿ penetration varies from 17% in Greece to 34% in Portugal ¿ which is not surprising given these countries¿ lower overall levels of Internet usage and PC ownership.¿ To explain why Forrester believes that the final 2004 numbers will mirror the massive broadband growth in 2002 and 2003, Godell adds: ¿Massive price cuts are leading to a rapidly declining broadband premium. This, combined with a continued strong supplier push, provides a major incentive to the consumer to make the switch to broadband.¿
Although European broadband market growth for the first half (H1) of 2004 was below that of H1 2003 (28% versus 36%), the full-year 2004 growth rates should again be high. The H1 2004 numbers revealed that market growth is still strong in France, Italy, and the UK, with first-half growth rates in these countries at 34%, 45%, and 38%, respectively. Moreover, in 2004 it seemed that nothing could stop ADSL¿s momentum versus cable and other technologies. The reason? The open, competitive xDSL platform has combined with superior xDSL household coverage ¿ above 80% ¿ to further increase ADSL¿s market share in 2004, as evidenced by the hundreds of resale and local loop unbundling agreements in place. With the exception of strong cable countries like the Netherlands, ADSL typically enjoyed a H1 2004 market share between 60% and 90%.
Forrester further sets out why incumbents¿ dominance of Europe¿s broadband retail markets is under threat. In 2004, most incumbents dominated their national broadband markets, with market shares typically between 50% and 70%. But in very competitive countries like the UK and the Netherlands, the retail market share was much lower: BT had only a 25% share, while KPN had 44%. And what should worry several incumbents is that their share in such a key market for the future is in decline ¿ for example, France Télécom’s share fell 16% from H1 2003 to H1 2004 ¿ and will probably continue to drop. Why? Continued intense competition, triggered by aggressive local loop unbundling regulation and renewed focus on broadband triple-play bundles of voice, video, and data ¿ business models that remind Forrester of the dot-com days ¿ will both drive the market forward and gradually reduce incumbent telcos¿ market dominance.
Finally, Godell discusses the future of broadband technologies, explaining that cable and other technologies like fiber, powerline, and fixed wireless technologies like WiMAX will continue to lose out to xDSL as 2010 approaches: ¿xDSL will dominate because it reaches at least twice as many households as cable, and because its main backers ¿ incumbent telcos like TeliaSonera and Swisscom ¿ benefit from superior financial positions, scale, scope, and brand strength. In 2010, xDSL will claim 80% of European broadband connections, dwarfing the alternatives. Cash shortages will kill cable¿s momentum and its market share will drop from 53% in 2000 to 15% in 2010.¿