Broadband household penetration in 2007 and
annual growth varied widely across Europe
Residential broadband penetration in Western Europe is set
to rise by 48 million households over the next six years, from
44% at the end of 2007 to 71% by the end of 2013, according to
a new study by Forrester Research. Over the same period,
Forrester projects the continual marginalisation of dial-up
services, which will account for only 2% of all online
The impact of emerging technologies such as WiMax and fibre to
the home will be limited to 8% of all internet
The addition of 48 million new broadband connections may seem
a healthy opportunity for broadband suppliers, but our forecast
reveals that the key challenge for ISPs will be managing
In 2008, we estimate the level of churn to be 23% across
Western Europe, and this will peak in 2012 at 31%.
Most at risk are incumbents such as BT, France Telecom,
Deutsche Telekom and KPN, due to regulatory action that force
them to open up their networks to competition through local
Incumbents will need to reassess existing retention strategies
in the light of increased price-based competition from
Broadband has been placed politically at the root of economic
and social development. It greatly enriches the online user
experience, allows users to communicate with the wider world
and extends online behaviour to advanced activities such as
online shopping and social networking.
We have seen a strong correlation between broadband adoption
and activities like online shopping.
However, the significance of broadband is not lost on
politicians. The EU for example has highlighted its own
broadband targets with its i2010 initiative. The aim of this is
to bring high-speed broadband access to all Europeans with the
hope to improve economic growth and employment.
Of course each member state has its own targets for broadband
adoption. Greece for example — traditionally the
market with the lowest broadband penetration in Europe
— has implemented its Digital Strategy 2006-2013 plan
to boost competition, lower prices, and catch up with the rest
There is still huge potential for growth in Western European
residential broadband despite a slowdown in the majority of
In terms of who's hot and who's not, which European member
states are leading the charge of residential broadband adoption
The Netherlands and Scandinavian countries continue to
dominate Europe as they have done for several years. Ahead of
the European average of 44% the Netherlands leads the pack with
household broadband penetration rates as high as 75%, closely
followed by Denmark with 73%.
Factors of success for these countries include strong
competition, low prices, and high broadband speeds —
offers of 20 megabits a second connections have become common
in these mature markets.
Middle-of-the-road countries including Europe's big three
follow. Germany, the UK and France, as well as Austria,
Switzerland, Belgium and Luxembourg still haven't quite caught
up with the leading countries.
The UK, Switzerland and Belgium have household penetration
levels of 56%, 55% and 55% respectively — still some
20 percentage points behind the Dutch.
Germany, Austria and France show an even wider gap, with
penetration rates around the 40% mark, below the European
However, these markets will catch up. Local loop unbundling
has fuelled competition, causing broadband prices to fall
further which will push uptake. They saw annual growth rates of
mostly 20-30% for 2007
The laggards are Greece, Ireland, Italy, Portugal and Spain,
which trail the group.
Countries in this category generally had relatively low
broadband household penetration coupled with high year-on-year
growth in 2007.
Spain, Portugal and Italy will see broadband household
penetration levels this year of 35%, 30% and 27% respectively,
and will grow by 24-28% on last year. Greece brings up the
rear, with just 17% broadband household penetration in
Lack of competition
Coverage issues and lack of competition still remain the key
challenges for Greece and Ireland to overcome, while Italy,
Portugal and Spain must concentrate their efforts to encourage
its customers to transfer from dial-up to broadband.
Looking ahead, broadband will continue to grow. At a European
level, broadband hasn't peaked yet. By the end of 2013,
Forrester expects penetration to rise to 121 million households
— or 71% of Western Europe's total.
That means 48 million new broadband household connections
during this period.
By 2013, 85% of homes in the Netherlands and Denmark will have
broadband connections. However the real growth opportunity will
be in countries we have classified as laggards or
middle-of-the-road countries, Germany, the UK and France.
Germany will add more than 11 million broadband connections,
while the UK and France will each add 8 million by the end of
2013. There is a significant growth opportunity for ISPs in
In contrast, Greece and Italy will reach 52% and 58%
respectively. The irony for Italy is that the high penetration
of 3G devices and take-up of mobile internet services will
undermine the future growth of broadband households.
New access technologies such as WiMax and fibre to the home
remain in their infancy in terms of deployment. So how will
these and other broadband access technologies develop over the
next five years?
Our research reveals that DSL will continue to dominate the
market as it continues to be the most cost-efficient
technology. Even cable-based and fibre-based ISPs such as
Virgin Media in the UK and FastWeb in Italy have adopted DSL
through local loop unbundling to increase their customer bases
quickly and economically.
Other technologies will grow but not as much as the hype
suggests. WiMax will be mostly a complementary technology,
deployed predominately in limited areas where DSL is either
unavailable or economically unviable.
Despite the obvious speed benefits of FTTH for the end user,
business models in all areas apart from greenfield sites will
Recent announcements from incumbent telecom operators have
shown limited support of FTTH. Only France Telecom has
committed to a wide scale deployment.
A more cautious approach has been adopted by the other
incumbent providers. Their plans are limited to fibre to the
kerb deployments, with the "last mile" supported through either
DSL or passive optical network technology.
Our interactions with ISPs have revealed churn as one of
their top three challenges in the next five years and this is
for good reasons. In 2008, 18 million households will switch
providers — 23% of the overall European base.
Looking at the 2008-13period, we will see more than 150
million cases of churn. This include includes savvy households
that will churn more than once in this period due to
dissatisfaction or to take advantage of better deals.
ISPs that respond by targeting these segments face a
double-edged sword as these customers will likely be short term
customers only, as they have already proved to be
Interestingly, churn was identified to be a universal issue
across countries we qualified as leaders, middle-of-the-road
and laggards. Related concerns such as customer satisfaction
were also prominent in our research with ISPs.
Tracking and improving measures have become increasingly
important and already feature prominently in KPI dashboards,
business goals and internal performance reviews
Retention, retention, retention
So it's a time of great change. The additional 48 million
broadband connections over the next five years is great news,
but sobering churn figures will offset this opportunity.
But there is hope for ISPs. Forrester can forecast that
triple-play and quadruple-play adoption will slow the state of
churn and help them get to grips with the problem.
The reason for this is this is customers are less likely to
switch providers if they are provided with multiple
Most at risk from customer churn will be incumbent providers
such as BT, France Telecom, Deutsche Telekom and KPN.
Regulators' LLU provisions will lead to regulatory action that
forces them to open up their networks to competition. This
gives alternative providers greater control over the provision
and packaging of their broadband services.
This will subsequently bring the price of broadband services
down, making it more affordable for a wider market.
Incumbent providers will be prepared for this price based
competition. Their revised customer retention strategy will
differentiate themselves with service and customer
So in the end it will come down to the age old decision for
consumers: cost or quality. GTB
Pete Nuthall is a research analyst at Forrester