July 17, 2001 -- (WEB HOST INDUSTRY REVIEW) -- Major consolidation in the European ISP market during the past year has left only a few companies standing despite surging Internet use, recent numbers indicate.
European consulting firm Analysys said this week that consolidation in Europe's dot-com market has led to the disappearance or merging of a whopping 3,000 ISPs over the past year.
This has left national telcos holding about 50 percent of the European ISP market - approximately the same market share major telcos in the United States hold.
Volatile market conditions seem to have finally taken their toll on many European dot-coms, much like the carnage seen in North America over the past couple of years. And, in some cases, smaller European ISPs are also accusing national telcos of squeezing them out of the market.
Such is the case with British ISP Big Blue Sky (BBS), who were recently forced to pull their "Internet for life" offering. BBS had planned to give users the opportunity to pay a one-time fee for unmetered lifetime Internet access.
Big Blue Sky said they never got the offering off the ground because of British Telecom, who they accuse of dragging their feet when it came time to implement the required infrastructure. This forced the company to rescind their offer.
BT angrily refuted the allegations, telling ISP portal Net 4 Nowt that "It is only too easy to blame others - especially BT - when a company's business model is simply not robust enough to succeed in what is an intensely competitive marketplace."
Big Blue Sky said it still hopes to have its service online by late August.
Regardless of whether BT is responsible for the demise of any smaller ISPs, Europe's larger dot-coms and telcos have certainly played an important part in the recent consolidation of ISPs and other Internet-based companies throughout Europe. Peter Bradshaw, an analyst with Merrill Lynch in London, told the Industry Standard recently that only one or two major Internet players are left standing in each European country. French ISP Wanadoo, one of Europe's largest providers, is such an example. The company has been on a buying spree of late, snapping up everything from small ISPs to large content portals, giving it a stranglehold on France's dot-com industry. "You have an oligopoly in each country," he told the Industry Standard. This means the shake-out has left only a handful of companies to try and grab a share of a consumer market that is still on the rise: a recent European Union report said the percentage of homes and offices with Internet access grew by 10 percent over six months in 2000.
The Standard also said recently that an AOL International study suggests a whopping 33 per cent of private European surfers have been online less than a year.
This increase will undoubtedly also result in an increase in demand for Web hosting services, particularly in the virtual to dedicated categories, where individual consumers tend to shop.
Some analysts believe markets have finally bottomed out, meaning market conditions will only get better for the survivors of the shake-out.
"We believe the [European Internet] industry is nearing the end of the brutal shakeout phase," Bradshaw said. "We are in the bottoming-out period."
The sudden shift in the momentum of Europe's ISP market has left many North American companies drooling.
One such company is AOL Time Warner, who is currently ramping up an aggressive campaign to snag European consumers and companies alike.
During a visit to Germany last week, CEO Gerald Levin said the company plans to generate half its revenues from overseas within the next ten years.
International revenues currently account for 17 per cent of the company's profits.
Levin also met with Chancellor Gerhard Schroeder to discuss the possibility of introducing a wholesale flat rate for German ISPs, according to Reuters. This would allow ISPs to bypass the per-minute access fees national telco Deutsche Telekom currently charges for access.
Many smaller companies focused on ISP and Web hosting services have also been making a push in to Europe of late, with one of the most recent being Texas-based C I Host. The company announced last week it would soon open a London data center and have one in Germany by 2002.
But the disappearance of thousands of ISPs in Europe over the course of only a year begs the question: should North American hosting companies be expanding in to Europe at all? The answer is yes, but very carefully. Thousands of disappearing ISPs doesn't necessarily mean there is no market for Internet services like hosting, particularly when Internet use is still surging in the region - it just means companies must spend wisely.
