Broadband Broadens Reach in Europe.

After a somewhat sluggish start, the demand for broadband will gain momentum across Europe, with the percentage of households with broadband Internet access growing from a paltry 0.2 percent in 1999 to an estimated 18 percent--or 27 million subscribers--by 2005, according to a report from Forrester Research, B.V.

The availability of more sophisticated content will drive a rapidly increasing need for higher bandwidth and force an industry shakeout as independent ISPs and broadband startups, lacking the scale, scope and brand strength necessary to sustain competitive edge, fall or get acquired, the report says. Telcos and cablecos will battle for ownership of the Continent's consumer market, says Lars Godell, telecom analyst for Forrester Research in Europe, and author of the study. In the following interview, Godell explains the shifting competitive landscape across Europe.

Why are the telcos be better positioned than cable companies to provide broadband access?

Cable only reaches 36 percent of European households, while 95 percent of European households have a telephone line, so there's a huge difference in market opportunity for telcos and cable companies. It's not a glass ceiling for cable companies in Europe--it's a concrete ceiling. And it will be extremely difficult to break through it, because it will require enormous investment to hook up all these households.

Cable modems are also interior to ADSL (Asymmetric Digital Subscriber Line). The more people on the cable network, the less bandwidth every one gets. Further, in Europe most Internet users access the Internet from many devices, including wireless, and therefore cable companies very often lack the platforms. They don't really have a mobile presence. Forrester forecasts that by 2005, 65 percent of Europeans will be regular mobile Internet users. So if you're losing out on the most important access devices in Europe, then you're in bad shape.

What other factors weigh in?

Cable companies are often smaller than the telcos they're competing against and they don't have the same scale or resources as a telco. Broadband delivery requires a massive investment--infrastructure, training, and so forth-- and some of the smaller cable companies have difficulty keeping up.

Cable companies have more money than some of the ISPs but relatively speaking, cable companies will be crushed by telcos. That's why in 2005, 53 percent of all Europeans who access broadband will use ADSL, while 17 percent will access though cable.

When will we see this industry consolidation?

The shakeout is coming sooner than you might appreciate. The access price war across Europe will trigger the shakeout because very few people will make money on broadband Internet access itself. The ISPs, telcos and cable companies will need additional revenues from e-commerce and advertising and deals with the content companies to survive. Just providing Internet access itself will not be a winning financially sound strategy, because it will be very bloody and you can't make money for providing global Internet access for $25 or less per month.

But don't they in the U.S.?

You have to bear in mind that European ISPs and telcos have to pay more for Internet access than in the U.S. because only the Europeans have to pay for the transatlantic connection--although both benefit from it. So below $25 a month it will be hard for anyone to make money in Europe. That's why the brand strength comes into play because only the big players can attract the Amazons of the world to be e-commerce partners. Players like Amazon don't want to be going to the smaller guys to sell their services. They want to be positioned on the big boy's portal. That's where they want to spend advertising dollars. The small guys won't be able to attract the extra revenues to survive the bloody price war.