Bungled regulatory strategies and lack of political vision have severely hampered development of competitive broadband markets across Europe, casting the continent in the role of poor cousin to Asian and North American neighbours when it comes to high-speed services.
Figures released by the ITU just ahead of the opening of this year's ITU Telecom World 2003 event show even the most wired European economies trailing well behind market leaders like Korea and Hong Kong, with modest penetration rates of around 8.5 per cent compared with Korea's 21 per cent and Hong Kong's 15 per cent. In North America, the Canadian market is also growing strongly, with more than 11 per cent penetration at end 2002, while the US countrywide figure of 7 per cent substantially understates real penetration levels in major business centres.
Conversely, some of Europe's most important economies have some of the region's most dismal levels of broadband access. In the UK, where monthly DSL line sharing prices are more than four times that of fellow G7 member Japan, penetration is among the lowest of any industrialised nation at a mere 2.3 subscribers per 100 lines at the end of last year. Germany and France don't fare much better, with just 7.4 per cent and 4.7 per cent of homes respectively connected to high-speed services.
While there are encouraging signs that Europe is at last beginning to wake up -- the continent narrowed the gap with the US over the last 12 months, notching up 90 per cent growth to America's 50 per cent many serious problems still need to be addressed fast if Europe is to avoid compromising its long-term business competitiveness.
Of these, the most serious is a chronic lack of competition in the broadband space, where incumbents still control over 80 per cent of all retail DSL connections and true unbundled access accounts for a mere 5 per cent of the market. Another is speed: while standard broadband speeds in Japan and Korea blast content down the line at 8-12Mbps, basic European DSL packages trickle data through at a leisurely 128kbps. Only countries with extensive cable networks, like Belgium, the Netherlands and Portugal, can hope to match even relatively modest North American cable modem service offerings of 1.5-3Mbps; in the rest of the region, 512kpbs looks like being the best users can hope for in the foreseeable future.
Desultory levels of competition in most national markets has led the EU to launch several demand- and supply-side initiatives aimed at fostering a more vigorous wholesale market, under the auspices of its eEurope 2005 Action Plan and 6th Telecommunications Framework, which came into effect in July. But they risk being neither tough nor far-reaching enough, according to Roger Wilson, managing director of the European Competitive Telecommunications Association (ECTA).
"We're disappointed there hasn't been a more robust approach," he says. "Only five out of 15 EU members met the July deadline for the others, we're already looking at the middle or end of next year." The lack of a viable wholesale product remains a major impediment in many markets, he says, urging regulators serious about improving national broadband capability to accelerate EU-mandated market analysis and the implementation of remedies to redress Significant Market Power (SMP).
Part of the blame for the current continental malaise can be attributed to regulators' rigid focus on facilities-based competition at the expense of wholesale bitstream access a policy which, in hindsight, levied an unrealistic investment burden on new players just when the market was at its most vulnerable. "The availability of a competitively-priced wholesale product lets operators address important geographical territories without the huge cost of deploying DSLAMs. Right now, only the very biggest players are in a position to attempt fully unbundled competitive access," notes Roland Montagne, head of broadband studies with French-based consultancy IDATE.
Another problem has been the lack of a coherent broadband vision at a national level, says Tim Kelly, head of ITU's Strategy and Policy Unit. "Asia's star performers -- Korea, Japan, Malaysia, Singapore -- have all targeted ICTs as an engine for growth, and have developed clear strategies to prioritise development of this sector," he says, citing the effectiveness of programmes like Malaysia's 2020 Vision and Singapore's Intelligent Island. "Conversely, most European authorities were content to simply let the private sector lead, without any clear idea of where they wanted it to go."
An excessive preoccupation with other technologies hasn't helped. With all the hubbub surrounding 3G, most investment dollars were quickly swallowed up by the mobile sector, with $$100 m spent on next-generation licences alone. In Europe, unlike in Asia, money earned through the sale of licences wasn't ploughed back into the industry, but was instead opportunistically used to cover budgetary shortfalls in unrelated areas. In addition, German-speaking nations' heavy investment in ISDN saw them reluctant to abandon that technology in the face of evolving market demands.
The real crux of the problem, however, may lie in the fact that many European governments still hold full or significant stakes in national incumbents, compromising their willingness to invoke tough penalties for obstructive behaviour, as well as their interest in fostering a truly competitive environment in which national operators can only stand to lose further market share.
But while that's not going to change anytime soon, there are signs 2004 could finally be Europe's "broadband year". EU figures show the number of connections have almost doubled over the last 12 months, from 9 million to 17.5 million region wide. Commissioner Erkki Likaanen predicts classical S-curve growth in the coming months, as more new and enhanced services become available and facilities-based competition begins to get a foothold. Looking further ahead, IDATE's Montagne forecasts more than a third of European households hooked up to broadband service by 2007.
"The new technology-neutral approach will allow operators to make buy or build decisions as appropriate," says Kelly. "That, combined with regulatory commitment to developing service-based offers that provide for a realistic gap between wholesale and retail pricing will be the critical factors in Europe's ability to play catch-up." By Sarah Parkes, ITU Telecom World 2003 On-Line News Service