February 5, 2002 -- GartnerG2, the business research and advisory service from Gartner, warned that the broadband revolution in Europe is on hold.

Based on a new survey conducted across France, Germany and the UK, it said that consumers are not prepared to pay a premium for broadband. Unless prices come down dramatically, GartnerG2 predicts that only 10 percent of households in France, Germany and the UK will have broadband Internet access by 2005.

GartnerG2 said the broadband proposition faces a dilemma that will not be solved easily. Although consumers are aware that broadband offers faster Internet access, there is currently no 'must have' application to convince the majority of consumers they need broadband, let alone pay for content. According to the survey, fewer than 10 percent of Internet households think broadband currently provides good value. GartnerG2 stressed there are differences between countries in Europe, and broadband penetration is lowest in countries where the price is highest.

"The industry has assumed that broadband would set consumers on fire," said Adam Daum, Vice President and Chief Analyst at GartnerG2. "However, speed alone is not enough: there must also be attractive broadband content." He added, "In the absence of good content, our research shows that consumers are very price-sensitive. To achieve widespread adoption of broadband, the price needs to fall from its current level of 45-60 Euros per month to less than 30." This is a tough decision for European telcos to make, however. If people switch from narrowband access to broadband, telcos face a high level of cannibalization of current dial-up revenues.

According to GartnerG2, most opportunities for broadband are either niche or high risk. Teleworking, which is often cited as an important potential market, remains niche according to GartnerG2. Only five percent of working adults in the UK currently works from home. Even with companies reviewing their security and travel arrangements in light of 11 September, there are no clear signs that this is increasing the number of people working from home.

Subject to regulatory approval, DSL service providers could use their networks to deliver pay-TV and telephone services. However, this requires significant investment and is also a risky move because it puts DSL providers into head-on competition with digital cable and satellite TV operators.

GartnerG2 says that three things must happen in order to drive broadband adoption across Europe:

1. Attractive content: media companies need to develop attractive applications. Much of this will center on entertainment, but there is also an opportunity to use educational content to help drive broadband into family households.

2. Try before you buy: consumers need to experience broadband before they commit themselves to regular monthly subscriptions. Broadband ISPs could help kick-start the market by providing high-speed connections to public-access locations such as Internet cafes, libraries and schools.

3. Lower prices: the price differential between narrowband and broadband must be significantly reduced. Based on current levels of price-sensitivity, broadband would have to be offered at below 30 Euros per month to achieve widespread take-up.

GartnerG2 believes broadband will become a reality, but it will be adopted more slowly than most people have predicted. Attractive content will take time to develop, and issues of digital rights management will need to be resolved. Broadband public access terminals will help, but they are not a quick fix since less than 10 percent of Internet users access the Web from public locations. Finally, telcos will be slow to reduce prices due to the cannibalization issue discussed earlier.

Many e-marketers and businesses such as automotive manufacturers and clothing retailers are eager for broadband to take off to enable use of richer marketing material, such as high-resolution photos and revolving 3D graphics on their Web sites.

Given current market conditions, however, GartnerG2 recommends that businesses continue to optimize web sites for narrowband access, delay investments in broadband Internet content and use rich media advertising sparingly. It also advised that any broadband marketing plans must be country specific, taking local differences into consideration. For example, try the Netherlands, where a third of households are expected to have broadband by 2005, mostly via cable networks, but skip Greece, which will have the lowest broadband penetration in Europe.

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