Facing tight competition and also as a result of widespread take-up of broadband in domestic markets, the “Big Five” European telco operators have been expanding into less developed regions to supplement revenues.

 

According to a Screen Digest research report, France Telecom (News - Alert), Deutsche Telekom and Telefonica in Spain have been busy acquiring stakes in overseas operators to provide access in up-and-coming regions.

 

In comparison, Telecom Italia (News - Alert) has been less active in younger broadband markets, and has remained focused on Western Europe, and British Telecom has restricted itself to its local markets in the UK and Ireland.

 

The research reports states that stiff competition and regulation has driven down the price of broadband access in the Big Five European markets. The report observes that while this is good news for consumers, Internet Service Providers (ISP’s), along with the telecoms industry as a whole, have seen margins tighten.

 

The research findings also note that intense competition has pushed providers to offer broadband as a free add-on for customers signing up to other services—a strategy that has been introduced to the UK by Sky and the Carphone Warehouse (News - Alert).

 

Incumbents and their competitors have offered multiple service packages including broadband, television, mobile and fixed phone in an effort to boost revenues from users and dissuade them from switching to rivals have, according to the research report.

 

The reports informs that with broadband penetration in these five countries standing at 44 percent at the end of 2007, compared to only 13 percent in Central and Eastern Europe and Latin America, operators have been looking further a field to retain and grow their revenues.

 

In spite of the hindering factors—which include including lack of infrastructure and often low PC-penetration—the research notes that there are two compelling factors for the five main European operators to invest in emerging markets.

 

First is the weak competition in the emerging markets, which provides network operators an opportunity to charge high fees for broadband access compared to average income levels, and defer upgrading networks to offer faster connection speeds.

 

In addition, unlike the ‘Big Five’ markets, regulation are said to be more lax in the emerging markets, which allows operators to enjoy greater freedom in broadband access, with some having a virtual monopoly in DSL provision.

 

The research findings anticipate that, during the next five years, average consumer broadband penetration in Latin America will hit 30 percent of homes. During 2007, the connections in Latin American increased 41 percent, which is almost double the 23 percent increase experienced in the Big Five in Europe

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As per the Screen Digest findings, Spanish operator, Telefonica is best placed to take advantage of developing markets in the Latin American region. After winning bid for a controlling stake in Colombia Telecom in 2006, Telefonica’s presence is also said to be growing rapidly.

 

“Obviously there are significant costs when expanding geographically, but with increasingly saturated domestic markets, the European operators have been forced to look to international markets for new customers,” James Garlick, analyst at Screen Digest says, said in a statement.

 

He also observed that British Telecom has bucked this trend by holding back on consumer broadband overseas, preferring to concentrate on acquisition to consolidate its position in the UK.

 

“However, its recent joint bid to buy a stake in Slovenia’s incumbent operator suggests that intense competition at home may have factored in BT’s (News - Alert) decision to make its first foray into an emerging market,” he added.