Europe's incumbent carriers have continued where they left off in 2003 with news of increasing broadband penetration and further investment in their data access networks.

And with their DSL strategies appearing to pay off and their finances in better shape than this time last year, credit rating agency Moody's Investors Service has described the credit outlook for Europe's investment-grade carriers as "moderately positive."

The latest broadband announcements come from several of the continent's big hitters:

Demand for DSL service has been one of the main success stories in the past year (see DSL Heads for 60M Users), and analysts believe growth will continue to be strong in 2004. "Broadband is one of the few services, along with mobile, that has captured the public's imagination in the past 10 years," says Chris Lewis at Yankee Group. "Demand is still outstripping supply, and now the European incumbents are investing in the networks that will allow them to offer tiered broadband services." He cites BT Group plc's (NYSE: BTY; London: BTA) 21st Century network plans as an example (see BT Gets Tough With Suppliers).

Meanwhile, Moody's says a significant fall in debt levels and improved cashflow at operators such as KPN, France Telecom, and Deutsche Telekom AG (NYSE: DT) has made the sector less risky.

However, the agency also notes that these same operators will likely suffer further pressure on their traditional voice revenues from "a mixture of wireless substitution and ongoing regulatory pressure," and, while "negative impact on cash flow may start to affect individual operators depending on their cost-reduction ability," it is "unlikely to manifest itself for the sector generally until 2005 or later."

— Ray Le Maistre, International Editor, Boardwatch