ISPs In Western Europe - Second edition
Key Developments and Prospects

by Rupert Wood and Philip Lakelin

This article is a condensation of the executive summary of an exhaustive study on the Western European Internet Service market published by Analysys Research, Ltd. Click here to read the full Executive Summary.

Introduction
Western Europe's market for Internet services is the second largest in the world and is now firmly entering its mass-market growth phase. Levels of demand among users are rising rapidly, fuelled by falling prices and declining underlying costs, and by the ever-expanding range of services being developed for the Internet.

By March 2000 the 16 Western European countries profiled in this report had a total of over 80 million Internet users, and more than 41 million Internet subscribers (see table below). The highest levels of growth are in Germany and the UK, but the majority of markets have been witnessing rapid uptake during the past two years. If the current growth rate of over 20% for the first quarter is repeated throughout the year, the number of users in Western Europe will have more than doubled by the year's end to reach a total of around 140 million.

Penetration rates are variable, ranging from around 4% in Greece to nearly 47% in Sweden, but they have risen from an average of approximately 17% for the 16 profiled countries at the end of 1999 to just under 21% by the end of March 2000.

The supply side of Western Europe's Internet market is extremely diverse, in part reflecting the cultural and sectoral fragmentation of Europe's user base. Over the past five years, the number of organisations offering commercial Internet services has grown exponentially to meet the rising demand and continues to increase at an astonishing rate. By the end of 1999 there were around 4000 Internet service providers (ISPs) in operation in the region. Due to the number of operators—as well as the number of often divergent business models—the structure of the Internet market is highly dynamic and is experiencing parallel cycles of fragmentation and consolidation.

Against this backdrop, ISPs are struggling to identify where the value in the Internet service provision market lies. There is rampant uncertainty about what modes of operation will ultimately prove The two most recent trends that illustrate this effect:

• In the residential sector, the emergence of unmetered dial-up offerings such as BT's SurfTime marks the first real move away from the traditional interconnect models and threatens to force ISPs to accelerate their move towards alternative sources of revenue such as advertising and ecommerce transactions.
• In the business sector, ISPs are seeking to transform themselves into application service providers (ASPs), combining their basic connectivity offerings with potentially higher-margin services such as Web hosting and design, ecommerce solutions, and systems integration.

 

	1997	1998	1999	2000
Austria	250,000	425,000	625,000	825,000
Belgium	100,000	210,000	740,000	890,000
Denmark	300,000	575,000	800,000	870,000
Finland	270,000	410,000	620,000	645,000
France	650,000	1,600,000	3,490,000	4,100,000
Germany	3,500,000	6,500,000	9,000,000	10,750,000
Greece	38,000	98,000	192,600	245,000
Ireland	35,000	100,000	240,000	295,000
Italy	533,600	1,142,000	2,900,000	3,800,000
Netherlands	595,000	1,080,000	2,130,000	2,590,000
Norway	400,000	600,000	900,000	965,000
Portugal	85,000	190,000	440,000	500,000
Spain	650,000	900,000	1,700,000	2,275,000
Sweden	900,000	1,600,000	2,000,000	2,175,000
Switzerland	375,000	575,000	1,000,000	1,200,000
UK	1,100,000	3,750,000	7,400,000	9,175,000
Total	9,781,600	19,755,000	34,177,600	41,300,000