Ofcom market report shows falling broadband prices in Europe

Ofcom, the UK telecoms regulator, has just released a detailed report on the availability, take-up and use of communications services among seven countries (the UK, France, Germany, Italy, the US, Canada and Japan) and where data are available, European countries (Poland, Spain, the Netherlands, Sweden and Ireland). They also analyzed the development of communications markets in Brazil, Russia, India and China. There are too many interesting points in this report, which you should download and read, but there are several that I would like to point out.

(1) Local loop unbundling and line sharing has resulted in more competition in Europe with a drop in broadband prices between 2006 and 2007, unlike in the US and Canada where there is a duopoly.

“In all of the European countries covered in the report, the average revenue per broadband connection fell between 2006 and 2007. This is despite significant improvements in the headline speeds of connections delivered by investment in network upgrades to ADSL2+ or other higher speed technologies.”

“In most European countries, broadband roll-out has been accompanied by national regulators (and European Commission directives) mandating that incumbent operators offer access to alternative network operators, both by offering wholesale line rental, and by allowing alternative operators to install their own equipment within telephone exchanges and take over the line to the end-users’ premises (local loop unbundling).  The result has been to create competition between suppliers: this has exerted downward pressure on pricing as operators battle for the market share they need to exploit economies of scale. This is evident in the rise of ‘service bundling’ in most European countries, where broadband is offered in association with another communications service such as fixed-voice (‘doubleplay’) or voice and television (‘tripleplay’). In the UK, broadband is often offered ‘free’ with other services, and some leading suppliers do not even offer it on a single service basis: for example, BSkyB offers broadband only in association with satellite TV services, while TalkTalk offers it only in association with fixed-line voice. In Spain, over 80% of broadband connections are bought in combination with another service.”

“By contrast, average revenue per broadband connection has increased in the non-European countries covered by this report (the US, Canada and Japan). In part, this is due to the improved service offered by the roll-out of high speed fibre networks. However, it also indicates that in countries where broadband suppliers typically operate in local duopolies (as  in the US and Canada, where the local cable operator typically competes with the incumbent telco operator for the supply of broadband services, or in Japan where fibre-to-the-home suppliers typically have sole access to households), operators are better positioned to maintain or increase prices by improving service quality, such as offering higher speed connections.”

As an example of how competition has resulted in lower prices and higher speeds, in London, some ISPs have launched 50MBps service, but most consumers still go for the 8MBps option and most say they are quite happy with it, according to a UK broadband comparison site for consumers. Packages that include the 8MBps speed are offered at anywhere between £3- £20 per month depending on the extras that one would choose.  While the price of broadband is dropping as faster speeds are becoming more prevalent in the market, the top speed packages are still rather expensive and not as common for the greater population. However, a 24Mbps speed which was a relatively fast speed last year is now available for a much cheaper price this year.  London currently has over 6 broadband providers that offer speeds that are more than 10Mbps and even a company that offers a whopping 20Mbps of symmetrical speed.  And while there are several FTTH providers throughout London it would cost the city over £20 Million to wire the whole city.

By contrast, Amsterdam has a number of providers offering 20Mbps service (although the upload speed is only 1024 Kbps) for between 10 EUR and 40 EUR per month, according to a Dutch website where people can compare broadband packages. The lower price of 10 EUR is usually a “stunt” and after a few months, the actual monthly fee goes up. For my postal code (1016) in the center of Amsterdam, I counted seven different providers, although three of them belong to the incumbent telecom operator, KPN.

But it’s in Paris that competition has been particularly fierce among providers of fiber to the home serivce. Iliad-Free says it is very close to covering 70% of the city. Based on the May 2008 data from CNET France, you can see that Iliad-Free is offering 100 Mbps download speeds (50 Mbps upload) for only 30 EUR per month; Neuf is charging 30 EUR per month for 50 Mbps symmetrical speed, Orange (the subsidiary of France Telecom) charges 48 EUR per month for 100 Mbps downstream and 10 Mbps upstream (you pay an extra 20 EUR per month if you want 100 Mbps upstream). All of these providers offer triple play services (television, Internet and telephony).

(2) There is little incentive among operators in the US to bundle services because there’s little competition.

“In the US, there are no savings available by purchasing services in ‘bundles’ rather than  purchasing the lowest price single services. This is probably the consequence of less diversification in local markets, with the incumbent telco and the local cable operator typically competing in a duopoly to serve voice, broadband and TV services to customers. In this environment, the bundling of ’free’ broadband with voice is value-destroying for operators who generally view voice, broadband and TV as three separate revenue streams. This contrasts with Europe, where local loop unbundling and wholesale line rental with regulated price controls has led to a competitive landscape characterised by alternative network operators building market share by launching bundled services (the incremental costs of adding a broadband service to a voice service are low, and the consumer benefits high) – and incumbents have responded by doing the same.”

(3) There is nearly one broadband connection for every four people across the countries in the report.

“With 26 connections per 100 people, the UK is third among our comparator countries, behind the Netherlands (35%) and Sweden (31%). Average growth in connections between 2004 and 2007 was highest in the UK, France, Germany, the Netherlands, Sweden and Ireland, at 5% per year.”

(4) US broadcast TV viewing levels least affected by the Internet than in other countries.

“In the US, broadcast-based TV viewing appears more resilient to internet access than anywhere else – the net percentage of US people viewing less broadcast-based TV since having internet access is 7%, whereas in all the other countries in our survey the figure was between 15% and 21%; in the UK it was 15%.”

(5) Mobile broadband availability using HSDPA exceeds 70% in many European countries, “prompting operators to develop residential mobile broadband services, enabled by plug-in dongles for laptops. HSDPA availability is highest in the UK (87%).”

Source: Ofcom International Communications Market 2008 (November) Report