Euronerds Have It…When Will You Get Broadband?

A paltry 362,000 predominantly young, white and male Euronerds–about 0.2% of all European households–currently have broadband Internet access [1999]. Broadband, which enables super-fast, always-on Internet connections, allows users to download and upload data substantially faster than with traditional dial-in modems.

But a new report by Forrester Research (NASDAQ: FORR) said that broadband usage in Europe will explode to a whopping 18% of the European population, or around 27 million users by 2005.

Internet use in Europe is nowhere near US levels, where 43% of the population had gone online from home by the end of 1999. The number in Europe was 13%. And in Europe, homes technically broadband-capable amount to less than 8%–so people who might want it couldn’t get it. Even if they could, high entry and monthly fees might keep users loyal to ol’ 56K.

“Europe lags somewhat behind the USA in terms of implementation,” said Lars Godell, analyst for European corporate technologies at Forrester Research and the lead author of the report, “but it’s growing quickly. Right now Sweden is the hottest broadband market in Europe, but it’s not the hottest end-market–it’s only one-ninth the size of Germany in terms of population.”

The report concludes that the reason this will change, and change fast, is that there’s boatloads of money to be made. “European providers,” said Godell, “see that US telcos aim to increase their average annual Revenue Per Subscriber from $480 to a potential $2,100 for a rich bundle of services.”

What’s The Holdup, And Where’s The Pipe?
The American market has been faster to adapt to broadband, with the proliferation of cable to such a large percentage of homes, and reduced copper-wire leasing rates. “Trying to break the last-mile bottleneck, AT&T gobbled up cablecos TCI and MediaOne to gain broadband access to more than 17 million homes,” said Maribel Lopez, a Forrester analyst and lead author of the March 2000 Forrester report Beyond Broadband. “Similarly, Sprint and MCI WorldCom paid fire-sale prices for multi-point, multi-channel distribution services (MMDS) licenses, hoping to redeploy this wireless technology for high-speed access in 60 million homes.”

Europe, on the other hand, has no such universal “last mile” solution, and companies are gearing up to actually bring the pipes to the users. They’re catching up, but as of yet telecoms and cable providers do not have the framework in place for an industry agreement on that subject. This will change within the next year.

Investors should look for tremendous opportunities in buying companies who will be actually bringing broadband to customers–such as Swedish competitors Bredbandsbolaget and Telia, as well as Nokia, Alcatel, Siemens, Austrian cableco Telekabel, Belgian telcom Belgacom and Italian entry Fastweb–which are pouring resources into creating new networks. Telcos and cablecos Chello and Deutsche Telekom, as well as optics and box makers such as Lucent and KPNQwest, are also well worth watching.

Europe vs. US
It is interesting to note that according to Forrester projections, the US will have 33% of households subscribing to broadband by 2005, versus 18% in Europe. However, when one takes into account the population of Europe (at around 385 million) versus the US (260 million) the percentages don’t necessarily mean significantly fewer subscribers. And in hot spots like Sweden, broadband penetration will surpass that of the US, with 40% of households signed on.

Barriers Remain
The remaining barriers to broadband taking off in Europe, said the report, should be gone by 2003. These include rapidly expanding the miles of fiber, copper and coaxial cable throughout Europe. Belgian telco Belgacom plans to cover 75% of Belgian homes with ADSL by the end of this year to try and compete with the widespread proliferation in Belgian cable coverage.

Forrester predicts that 50% of European households north of the Alps will have broadband coverage by the end of 2001, which is 10 times the number today. This kind of competitive climate, when looked at on a pan-European basis, will increase coverage while simultaneously offering a competitive advantage that will lower entry and monthly access fees: Forrester predicts that access prices will sink below €30 per month in 10 out of 17 European countries by the end of 2002.

“That’s a level well within the 2% of disposable income that European industry forecasters hold as a price ceiling in a 1997 expert survey for the European Union,” said the report.