2007 Western European Broadband Market

This report covers recent developments in Western Europe’s fixed and wireless 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 the market conditions which will affect how broadband is likely to progress to the end of the decade. During 2007 cable consolidation in a number of important markets, notably the UK, Germany and The Netherlands, strengthened the position of the major cablecos as they compete against DSL providers. DSL still dominates the provision of broadband in all European Union markets to a greater of lesser extent. Technological developments and the large-scale deployments of faster ADSL2+ and VDSL networks throughout the region have driven broadband into a greater number of homes as entertainment becomes increasingly dependent on IP-delivered content. Municipal and national governments have also encouraged broadband infrastructure upgrades as a means of securing local jobs and improving social access to a range of services including education and health care. Cable operators have responded to the growing reach of ADSL2+ by upgrading networks and developing the DOCSIS 3.0 standard to provide broadband at up to 100Mb/s, sufficient to meet foreseeable home bandwidth requirements and to match competing DSL offers. The markets covered in this report include:

Finland

Finland is ahead of most of Europe in the use and development of broadband. Broadband penetration, even though the country’s multi-platform competitive environment is not as strong as in other markets: in 2007 cable represented only 12.6% of all broadband connections. In 2007 Internet use was the third highest in Europe, while more than half of all households had a computer. Internet growth has been driven by access prices which are among the lowest in the OECD and below the EU average. The popularity of DSL is partly explained by fast download speeds as the main providers continue to invest in network upgrades. A few companies have invested in VDSL networks, including the regional telco Päijät-Hämeen Puhelin in March 2007 and the ISP Nebula in Helsinki (July 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 has aimed for the majority of connections to reach at least 8Mb/s by early 2008. In addition, spectrum in the 450MHz band which was freed up with the closure of analogue NMT 450 mobile systems has been turned over for digital wireless services operated by Digita: about 80% population coverage was expected by June 2008, and the entire territory by December 2009. This would make Finland the world’s first country with a national wireless broadband network. For the country overview, see chapter 5, page 50.

France

France has the third largest broadband subscriber base in Europe. Growth in 2007 was bolstered by demand for high bandwidth applications, considerable investment in fibre infrastructure, and a pro-competitive regulator which has provided easy access to the incumbent’s network for new entrants through local loop unbundling. By June 2007 LLU was available to around 63% of installed lines, making France the second largest ADSL market in Europe. Growth in the broadband market has slowed since 2006 as penetration has increased, but remained a healthy 30% in 2007. During the next few years the focus for investment and customer acquisition is likely to move to fibre: France has one of the most vibrant fibre markets in Europe with the main providers such as Free and neuf Cegetel investing billions of Euro in networks in and around Paris and major cities. Their activities have forced France Telecom to rethink its fibre strategy in a bid to keep up with the new entrants, and to call for all fibre deployments to be open access. For the country overview, see chapter 6, page 59.

Germany

Germany has the second largest Internet and broadband market in Europe, supported by a large and wealthy population which has been a strong catalyst for driving IP-delivered content and services. On a European level, Germany has fallen behind its neighbours in broadband penetration. Heel-dragging by the incumbent DT, though still evident in its VDSL plans, has been more aggressively challenged by the regulator than hitherto, with positive results for wholesale and bitstream access. The vast majority of broadband connections in 2007 are via DSL, with while cable accounted for less than 3% of subscribers despite the extensive cable networks. However, the cable sector has been further consolidated through mergers and acquisitions: in October 2007 KDG bought 1.2 million subscribers from Orion Group in eight States. These moves have helped positioned cablecos to compete with DT through network upgrades and triple play offers. Municipal networks such as NetCologne offer effective alternatives to DT, resulting in the incumbent being squeezed out of a growing number of communities: DT has lost millions of fixed-line customers since 2006. The company’s contentious regulatory holiday on its hybrid fibre / VDSL network has (temporarily) locked out competitor access, but legal action from the EC may force though wholesale access during 2008, so stimulating broadband development through encouraging greater competition. For the country overview, see chapter 7, page 82.

Ireland

Ireland’s Internet and broadband markets are underdeveloped by European standards, partly due to poor competition and limited coverage in many non-urban areas. However, government efforts to improve local loop unbundling and wholesale access has meant that growth in 2007 was strong. DSL accounted for about 72% of total broadband subscribers in 2007. In terms of broadband cost, Ireland compared well relative to the EU27 for entry-level DSL in 2007, ranking fifth. Nevertheless, data speeds remain comparatively slow. In May 2007 the government launched its National Broadband Scheme, a five-year technology-neutral contract worth some €435 million aimed at providing broadband for the 15-20% of citizens who would be unable to access broadband even if all exchanges were upgraded. For the country overview, see chapter 9, page 104.

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 local loop unbundling has promoted considerable competition within the DSL sector, while the fibre sector is among the most vibrant in Europe - companies such as FASTWEB are aggressively built out fibre networks, supplemented by WiMAX and DSL based on LLU for areas not covered by fibre. This strong competition brought Telecom Italia’s share of broadband connections down to 63% by July 2007. For the country overview, see chapter 10, page 120.

Netherlands

Dutch broadband penetration is one of the highest in the world, the result of large-scale government and municipal investment in broadband deployments. The country has effective inter-platform competition, with a strong DSL and cable presence. In 2007 KPN agreed an alternative to the MDFs being phased-out as part of its national Next Generation Network, covering unbundled access, wholesale broadband access and SDF backhaul. The company negotiated a Memorandum of Understanding with three of its main retail customers for access to the All-IP network. The cable sector has seen considerable consolidation, providing synergies to present a stronger competitive force to KPN. In mid-2007 Casema, Multikabel and @Home merged part of their operations to form Zesko. For the country overview, see chapter 13, page 144.

Norway

The number of Internet users and broadband subscribers has grown sharply during the last two years. Most of the population is densely urban, which makes it more economically viable for providers to upgrade networks. Remote communities are generally served by municipal investments in local networks. DSL accounted for about 79% of all broadband connections in 2007, with cable taking 14%. Norway’s topography is suited to wireless access, and the country is a leader in Europe in this sector, with a wireless broadband market share of about 3%. More than 50 municipalities and as many local hydro power electricity companies offered broadband in 2007. For the country overview, see chapter 14, page 160.

Spain

In 2007 Spain’s broadband penetration reached the European average. Telefónica dominates the DSL infrastructure and commanded 61% of broadband revenue in mid-2007. The country is still plagued by high access prices, while relatively few subscribers have fast services despite extensive ADSL2+ upgrades during the year. In July 2007 the EC fined Telefónica €151.9 million for breaking anti-trust laws. The move heightened regulatory efforts the increase competitive pressure in the sector. For the country overview, see chapter 16, page 177.

Sweden

Sweden has one of the highest broadband penetration rates in Europe, the result of an effective government broadband policy and a population quick to adopt emerging technologies. Considerable investment in fast mobile networks has also made mobile broadband a realistic proposition. The share of dial-up revenue fell from 72% in 2001 to 9% in 2006, and in 2007 TeliaSonera stopped providing dial-up for new subscribers. Most of Sweden’s 289 municipalities operate their own networks, all of which will be interconnected with fibre by 2010. Sweden is one of the world’s leading countries for fibre deployment, largely due to the population density in a small geographical area - more than 50% of the country’s workforce lives within the three main cities, many in apartment buildings. TeliaSonera in early 2007 committed itself to building a 100Mb/s fibre service to Sweden’s 15 largest cities. For the country overview, see chapter 17, page 189.

Switzerland

Switzerland retains one of the highest Internet and broadband penetration rates in Europe. Most connections are through DSL: the country’s mountainous terrain, which prevented adequate terrestrial reception, encouraged investments in cable networks but by mid-2007 cable broadband accounted for about 35% of all broadband connections, down from about 75% in 2000. Broadband data speeds remain relatively slow - the fastest speed from Cablecom in 2007 was 10Mb/s while Swisscom offered up to 15Mb/s. Swisscom has begun to build out municipal fibre in the main cities, providing 20Mb/s via its hybrid VDSL network. May 2007 the In Confederation and cantons agreed on a broadband strategy to 2010, focussed on e-heath and e-government initiatives. For the country overview, see chapter 18, page 202.

The UK

The UK has a fiercely competitive broadband market, with comprehensive DSL complemented by 50% population coverage from Virgin Media. The country pioneered the ‘free’ broadband model, while during 2007 broadband has also been provided by broadcasters (BSkyB) and mobile operators (O2, Vodafone). The 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. In October 2007 Ofcom launched a consultation on whether the country should develop a nationwide fibre network to accommodate consumer demand for bandwidth. A national fibre network would have a major impact on the economy, and would require up to £15 billion to build. For the country overview, see chapter 19, page 210.

Data in this report is the latest available at the time of preparation and may not be for the current year.