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EU Telco's & Broadband Dominance
By: MarkJ - 05 December, 2005 (1:03 PM)

The Deutsche Bank Group has posted an interesting piece of research that looks at the spread of broadband, with specific focus on incumbent operators and LLU providers. The chart below helps to show the related market differences between the UK, Germany, Italy and France:

Internet telephony requires subscribers to have a broadband connection - usually DSL or a cable modem. Broadband alone guarantees end-users the voice transmission quality to which they are accustomed. However, it is still not that common in Europe (Western Europe: 8 connections per 100 inhabitants). This already severely limits the scope for internet telephony. Besides, apart from the low degree of broadband penetration the structure of competition in the broadband market is a substantial obstacle to an internet telephony breakthrough. In Europe, DSL is the predominant technology. Alternatives such as cable modem, popular in the USA, are more or less unknown in Germany. The DSL networks are usually run by the former incumbents of the voice telephony market, though, and the latter can exploit their ownership of the "last mile" to the subscriber to keep innovative competitors from getting their foot in the door.

The low penetration of broadband technology and the former monopolists' ongoing dominance of the telecommunication networks explain why internet telephony has remained negligible as a percentage of total voice telephony volume so far. In this context, the European Regulators Group (ERG) says: "The quantitative impact of the VoIP services on the broadband market is so far considered too small to be analysed." In Germany, for instance, internet telephony accounts for merely 2% of total telephone minutes. Today, it is mostly internationally operating companies that use internet telephony. For them, the difference in cost to standard telephony is large enough to make the changeover to internet telephony worthwhile.

Internet telephony's market potential as a stand-alone product has been considerably overestimated up to now. So if internet telephony is to be a success in the European mass market, policymakers and regulators have to address the task of promoting broadband technologies without simultaneously reinforcing the structures of the former incumbents.

The chart itself is based upon data from over a year ago, which is consequently somewhat out of date given the rapid pace of change in this market. Never the less it does make for an interesting read.

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