Key trends in 1Q 2006 broadband market data

Following on from last week’s qualitative look at the broadband market, this week Analysys Insight delves deeper into the data. We identify the movers and shakers on the European broadband scene, explore what has made some succeed where others fail, and take a closer look at the Italian broadband market.

Greek incumbent OTE demonstrated the strongest percentage-point gain in retail market share in 1Q 2006

In 1Q 2006 several IPTV solutions were launched by incumbent operators eager to win back customers after a disappointing 4Q 2005. Indeed, incumbent operators are, on the basis of retail market share, again on the ascent in broadband, as shown in Figure 1. The incumbents that experienced the greatest percentage-point change in their retail broadband market share in 1Q 2006 are shown in Figure 2.

Figure 1: Percentage-point change in incumbent retail broadband market share in 1Q 2006 (Source: Analysys Research, 2006)

Figure 2: Incumbents with the greatest change in retail broadband market share in 1Q 2006 (Source: Analysys Research, 2006)

OTE had strong net additions in 1Q 2006 relative to the overall size of the market, reporting 58 000 new ADSL lines in service, of which an estimated 55 000 were retailed by the incumbent, equating to a gain of 6.7 percentage points in retail market share. The Greek broadband market is relatively young (having had no commercial services until 2003) and with unbundling still limited, OTE continues to dominate. However, this may change given alternative operator Vivodi’s ambitious ADSL2+ roll-out plans for the remainder of 2006.

Finland differs from the majority of European markets by defining multiple incumbent operators, with TeliaSonera, Elisa and the Finnet Group all having held monopolies in their local service areas. The operators’ 3.0 percentage-point increase in market share can be attributed to a growing dominance over cable rival SW Televisio Oy, which is beginning to feel the limitations of its footprint. Among the incumbents, Elisa continues to dominate as the largest operator, with 40% of all DSL connections. In 2Q 2005 Elisa overtook TeliaSonera, which now holds 32% of the DSL market. The Finnet Group has the remaining 28%.

France Telecom has also had a successful quarter, reporting 468 000 net retail additions, principally due to strong Livebox home-gateway sales (472 000 additions) and the launch of Le Bouquet TV, which offers free access to 30 general and special-interest channels, as well as free-to-air DTT channels, and subscription rights to premium content packages from TPS, CANALSAT and Canal+. A networked PVR service, Mon Magneto, was also made available.

Portugal Telecom lost 2.7 percentage points of its retail market share in 1Q 2006, owing mainly to the growth in LLUB over the quarter: 109 000 additional unbundled lines became available for DSL service, an increase of 51% compared with 4Q 2005. The incumbent is likely to be paying close attention to its potential purchaser, altnet Sonae.com, which is offering a competitively priced ADSL2+ service bundled with voice services as part of a double play.

TDC reported the largest drop in retail market share, 4.6 percentage points, in a market that holds a larger than average number of rival broadband access operators using a wide variety of access technologies. Indeed, the ADSL Internet access market in Denmark is characterised by the fact that services provided over unbundled local loops are the norm rather than the exception. Telenor-owned Cybercity, the incumbent’s main rival among unbundlers, continued to show strong growth (a 13.0% growth in subscribers) in the quarter, accounting for 9.0% of the broadband market at the end of 1Q 2006. Cybercity’s potential integration with mobile operator Sonofon, which would increase the number of distribution channels for the operator’s services, differentiates it from the altnet competition. In addition, the operator has announced an array of technological differentiators, such as IPTV services and higher speeds through ADSL2+ (although both of these have been delayed beyond original target launch dates).

Country in focus: Italy

In terms of broadband site penetration, Italy still lags behind most other Western European countries. However, with an estimated 7.22 million broadband connections at the end of March 2006 and a site penetration of 28.7%, Italy has finally overtaken Germany and is starting to catch up with Spain and Austria. This is due in part to intervention by the Italian government in order to stimulate demand, and in part to recent strong ADSL2+ deployments by alternative operators.

With the widespread roll-out of unbundled services and increasingly high bandwidth speeds, Telecom Italia faces a big threat from rival double- and triple-play strategies – most players in the DSL market now offer bundles of Internet access and voice. Also, given the lack of cable TV in Italy, there is considerable untapped potential for multimedia services over the Internet. Video content is becoming more common as the broadband market becomes increasingly competitive and especially as FASTWEB, Tiscali and Wind continue expanding their networks to reach more customers.

Telecom Italia continues to dominate

With its market share increasing by 4 percentage points year-on-year, from 66% at the end of March 2005 to 70% at the end of March 2006, Telecom Italia leads the retail broadband market (see Figure 3), although its market position has more recently been challenged by FASTWEB’s aggressive expansion plans. Telecom Italia offers a broad range of ADSL packages (prepaid, metered and time-based bundles as well as flat-rate services) that cater to many market segments. LLUB is now very cheap in Italy, with both Wind and Tiscali offering competitive ADSL2+ services. In February 2006 Telecom Italia rejoined the race, launching 20Mbit/s services in 30 cities (growing to 60 cities in May 2006) and announcing planned access speeds of 50Mbit/s by 2007. In April 2006 FASTWEB announced the launch of 20Mbit/s ADSL2+ services, which require only a one-off payment of EUR80 in addition to a regular 6Mbit/s subscription.

Figure 3: Italian retail broadband subscriber market share, March 2006 (Source: Analysys Research, 2006)

FASTWEB, Wind and Tiscali maintained strong retail market share growth over 1Q 2006 (11.3%, 9.1% and 15.5%, respectively) thanks to their continued ADSL2+ roll-outs. Telecom Italia, which had extremely strong growth (19.3%) over 4Q 2005 with the launch of its Alice Home IPTV services, has seen this growth fall to 5.2% as alternative operators’ cheaper 12Mbit/s services have presented strong competition for its own 20Mbit/s service.

Market outlook: from triple play to quadruple play

Currently, provision for MVNOs is not a legal requirement for mobile network operators in Italy and none has yet entered into such an arrangement. However, talks between FASTWEB and mobile operators, in particular Vodafone, indicate that this is likely to change in the near future. Taking FASTWEB as a partner may be an attractive option for mobile operators, as Vodafone seeks to gain market share on TIM (Telecom Italia’s mobile arm) and operator 3 Italia aims to consolidate its position in the mobile market. Smaller players with network infrastructure, such as 3 Italia, will be most interested, as MVNOs have proved to be an effective means of gaining mobile market share. While Wind already has an established mobile arm, altnets such as Tele2 do not, and these companies have followed FASTWEB’s lead in initiating MVNO talks.