Eurobites: Access All Areas

"Summer's here, and the time is right…" sang Martha Reeves and the Vandellas, "…for signing up to a broadband service."

OK, wrong lyrics – Martha and her crew were more interested in dancing in the street, which is particularly dangerous.

By contrast, the youth of today are more interested in paying for a high-speed connection to the Internet, even during the more temperate months of the year. Less tiring.

Indeed, broadband demand is helping Europe's major incumbents cope better with their declining fixed-voice revenues.

But before we look at how much dancing the big guns in France, Italy, Spain, and the U.K. are doing, let's consider the modern-day value of the European DSL user and the emergence of an important fixed/mobile strategy.

What price a broadband customer?
With a little help from Dutch incumbent KPN Telecom NV (NYSE: KPN), which recently acquired Tiscali's DSL customer base in the Netherlands, we have a valuation of sorts for a broadband customer (see Tiscali Sells Dutch DSL Base).

KPN paid €13 million (US$16 million) for 60,000 broadband customers, making each one worth €216.67 ($267.12). So now you know. But why did Tiscali sell off such a sought-after bunch of users? They were customers signed up through a reseller deal with KPN, and now Tiscali is interested only in customers connected to its own access equipment connected to unbundled lines.

Mobile carrier moves into DSL
Now, this is what you get when anyone can install their own broadband access equipment in the incumbent's local exchanges, and the mobile operators catch on to the whole fixed/mobile convergence thang.

Mobistar SA, a GSM operator in Belgium with nearly 2.9 million subscribers, about 33 percent of the total market, is deploying Alcatel DSLAMs in the exchanges of incumbent carrier Belgacom (Euronext: BELG), so it can offer its own broadband services as part of a fixed/mobile bundle (see Mobistar Picks Alcatel for DSL).

Not only that, the operator is to develop services that it can then provide to any customer, whether at the end of a copper wire or a mobile connection. And that's why IMS is such a big deal (see IMS Guide and IMS Takes Over the World).

FT aime le broadband
Perhaps it was Minitel's fault that Internet connectivity is so popular in France. Whatever the cause, there's no sign of demand abating. Broadband connections grew by 913,000, more than 13 percent, in the first three months of this year to total nearly 7.7 million, making France the fifth biggest broadband market in the world in terms of lines.

Those new connections took France's broadband (DSL and cable) penetration to just 12.6 percent, far lower than in many other Western European countries, so there's room for more growth, as France Telecom SA's (NYSE: FTE) latest results showed (see France Telecom Reports H1 Prelims).

FT's wholesale business added another 618,000 DSL connections during the second quarter, with its retail division claiming 297,000 of those to take its total to 3.66 million. Those net adds, and gains in mobile, helped the carrier to record a first-half net profit of €3.4 billion ($4.15 billion), about €1 billion ($1.22 billion) higher than forecasted.

And FT will have an even greater mobile empire in the future, having just splashed billions buying its way into the Spanish wireless services market (see FT Takes on Telefónica).

Despite its broadband gains, FT is facing major competition from alternative providers that are reselling its lines and unbundling FT's copper to operate their own DSL connections. By the end of June, there were 7.8 million DSL connections in France, of which 2.3 million were unbundled by the likes of Free, Neuf Telecom, and Telecom Italia SpA (NYSE: TI). (See Iliad's Free Strategy Pays Off.)

As if that weren't competition enough, the European Commission has just ratified a regulation that, in a bid to foster even greater broadband competition, forces FT to sell wholesale broadband access capacity to its competitors (see EC Backs French Regulation). This will allow them to sell their own retail services, rather than just reselling FT's services.

TI fixes its fixed sales
Down in the country shaped like a hip-wader, broadband growth means Telecom Italia's fixed-line revenues grew more than 2 percent in the first half of this year to €8.8 billion ($10.8 billion), even though traditional voice revenues were down nearly 3 percent to about €5.2 billion ($6.4 billion).

Broadband revenues grew 21 percent, compared with a year earlier, to €593 million ($731 million). Telecom Italia had 5.57 million broadband customers on June 30, of which 4.62 million are in Italy and 953,000 elsewhere in Europe (mostly in France).

Overall, the carrier posted numbers at the high end of analysts' expectations, with revenues growing 5.2 percent (see Telecom Italia Grows in H1).

But the carrier's management is not complacent, and they're planning a series of cost-cutting measures across the company, in areas such as advertising, consultancy, and capital expenditure, to reduce outgoings following the merger of its fixed and mobile businesses (see TI, TIM Complete Merger). Details are due to be announced when the operator unveils its third-quarter numbers in October.

BT under broadband pressure
The U.K. carrier also reported a neat set of numbers, with first-quarter revenues up 5 percent and pre-tax profits leaping 20 percent (see BT Reports Q1 Growth). That growth was driven particularly by increasing revenues from what BT calls "New Wave" services, including broadband, which were up 48 percent to £1.39 billion ($2.47 billion) compared with a year earlier.

BT now has 5.6 million broadband lines activated, though many of those are on a wholesale basis and are activated for other service providers. BT's retail division has 1.94 million of those lines, giving it a 35 percent market share of the DSL market, but a lower share of the broadband market overall, as the U.K.'s cable companies have more than 2 million broadband customers between them.

But despite the figures and growth, there are concerns over the operator's margins. Analysts weren't that impressed by BT's earnings before interest, tax, depreciation, and amortization (EBITDA) and are concerned about the impact that local loop unbundling (LLU) will have on BT's business (see Unbundling Heats Up in UK). For instance, analysts at Lehman Brothers believe that the "market underestimates the threat of LLU," and they go on to note that the revenues BT can expect from rivals unbundling its copper have just gone down, as price cuts imposed by the regulator have just come into effect.

Not only that, BT now has a rival for the provision of wholesale broadband services, in the form of Easynet Ltd., which has been unbundling BT's copper and installing its own equipment for some time and is ramping up its business (see Easynet Plans UK Expansion). It has just announced a customer, which says it switched to Easynet's wholesale service because it was tired of BT's poor service (see OneTel Turns to Easynet).

The gains in Spain
Telefónica SA ramped up its financials a notch, recording a 25.4 percent rise in profits to €1.84 billion ($2.27 billion), and a 20 percent rise in revenues to €17.4 billion ($21.4 billion) in the first half of the year, with mobile services contributing much of the gains (see Telefónica Grows in H1). But broadband played its part. Telefónica now has just over 2 million retail DSL customers in Spain, including 205,000 new subscribers in the second quarter. That gives it a market share of just less than 50 percent in its domestic market as it competes with the likes of France Telecom's Wanadoo, Jazztel plc, and T-Online International AG (see Jazztel Picks RAD for DSLAMs Over SDH and T-Online Makes Spanish Acquisition).

Following its acquisition of and its quarterly gains, the operator now has more than 145 million customers around the world (see Telefonica Buys Cesky Telecom).

Spain gains a bigger Ono
Telefónica doesn't just face competition from other DSL players, as there's now a bigger, meaner cable operator looking to win triple-play customers now that Ono has finally done the decent thing and struck a €2.25 billion ($2.8 billion) deal to buy the fixed-line assets of Grupo Auna, which sold its mobile business to France Telecom (see FT Takes on Telefónica).

The deal makes Ono a national cable operator with 2.2 million customers, as Auna's assets will give it a presence in the key markets of Madrid and Barcelona. Ono will raise the acquisition money through a new debt issue and a €1 billion ($1.24 billion) cash injection from a number of private equity firms, including Providence Equity Partners and J.P. Morgan.

Other recent European news of note includes:

— Ray Le Maistre, International News Editor, Light Reading

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