European dial-up market set to shrink, says IDC

14 November 2002 -- The dial-up access market in Western Europe is set to decline, both in the number of connections and total spending, while the industry continues to consolidate around a few key players. So says a new study from market analyst IDC.

The number of dial connections in Western Europe - 46.2m at the
end of 2001 - will peak in 2003 before declining to 39.9m at the end of 2006. Meanwhile, 52% of subscribers at the end of 2001 was held by the top six ISPs.

This decline in dial will coincide with a migration to broadband, as Internet users' habits and expectations become more sophisticated. The study predicts that user spending on broadband will grow by nearly 13 times between 2001 and 2006.

Despite the fact that, for many European households, broadband services are still priced fairly highly, their steady uptake is already having a negative impact on dial-up growth.

"A natural market cycle is occurring, in which a more sophisticated market with ever-demanding users is causing the first wave of Internet access technology to fade," said Chris Drake, Senior Analyst for IDC's European IP Services research.

"This will not only lead to a steady decline in the number of narrowband connections from 2003 onwards, but will also be characterized by ongoing consolidation among market players."

By the end of 2001, the consumer Internet market was dominated by a small number of pan-European ISPs, led by T-Online, Tiscali and Wanadoo.

Dial-up is entering the autumn of its lifecycle due to some major demand-side "pull" factors, including:
- Greater user familiarity with faster connection and transmission speeds, as well as the desire to replicate on their home PCs the sort of quality experienced in places such as the workplace.
- The development of the Internet as an important source of content. This has been accompanied by greater user impatience with the often arduous process of downloading online content such as data files, images, music and software.
- A trend towards PC-networking - as more households possess second PCs, networking them enables Internet connectivity without the need for additional phone lines. Broadband is required to support the higher levels of bandwidth.

Meanwhile, service providers are being forced to change the nature of their access business for the above reasons and in order to:
- Support their increasing involvement in content production and distribution
- as ISPs look for ways to secure their future business potential, the delivery of rich content services, including bandwidth-hungry graphics, online gaming, and streaming music and video services, is not only a potentially high-profit business activity, but also offers ISPs numerous cross-selling and up-selling opportunities.
- Keep their "tier 1" customers - ISPs are engaged in revenue and service diversification to ensure that their service remains an attractive one to high-spending users. In future, it is likely that ISPs will bundle broadband connections along with content services.

An ever-sophisticated market is also fueling ISP consolidation, as smaller market players find it increasingly difficult to compete against larger rivals in the race to deploy broadband services and rich content. "The broadband genie is out of the bottle," said Drake. "The future for ISPs that simply stick to basic dial-up services is limited. They will have to adapt to changing market conditions, or risk losing market share to larger players."

European Consumer ISP Market, 2001-2006 (IDC #HP03J), published in IDC's European IP Services program, sizes and forecasts the market for consumer dial and broadband access services, and requires country-by-country market shares for the top six ISPs.

The study is aimed at service providers, equipment manufacturers and other companies on the supply side of the consumer ISP industry. The study is available to purchase from your local IDC office.