The number of worldwide consumer broadband connections will reach 364-million by 2010, according to Gartner. At the end of 2005, 12% of households worldwide had a broadband connection and by 2010 Gartner estimates that figure will nearly double to reach 21%.
The mature market segment of Asia/Pacific and Japan will continue to account for nearly 40% of worldwide broadband connections. In this region, Gartner predicts that three quarters of households will have broadband connections by 2010 compared with around half of North American and Western European households.
"The rapid rise in consumer broadband penetration in recent years has been largely driven by price cuts of more than 10% a year as well as increased service speeds," says Susan Richardson, principal research analyst at Gartner. "In that time it has become one of the key revenue generators for operators, helping to counter declining revenue from services such as traditional voice and legacy data services.
"However, as penetration in some markets heads towards saturation point, telecom carriers are facing up to the fact that a continued focus on acquiring new customers will not be enough to make price cutting profitable in the future."
Broadband has achieved mass-market penetration in Western Europe with France, Germany and the UK leading in terms of absolute numbers. Denmark, the Netherlands and Switzerland had the highest consumer broadband household penetration rates in 2005.
Broadband service revenue will grow at a compound annual growth rate (CAGR) of 8,8% to 2010. However, according to Gartner, total subscriber growth in Western Europe began to slow down towards the end of 2006 and, although some way off saturation point, Gartner says service providers will need to take steps to safeguard future revenues.
"Providers are going to have to work harder to both attract new customers and increase average revenue per user (ARPU)," says Richardson. "As competitive pressure from alternative operators increases, features such as greater speeds will no longer be a differentiation factor but a means to deliver the kinds of web-based applications, voice and video services which users will demand."
Strategies adopted by providers to maximise future revenues will vary from country to country according to the relative maturity and sophistication of the market. In the Nordic countries for example, Gartner predicts that absolute penetration levels will be about 70%, while many southern European countries will have penetration levels below 50% and consequently lower saturation points.
"In countries with higher eventual broadband penetration levels there is still a good business case for targeting the late adopters," says Richardson. "In other markets providers will need to focus more on existing users, as a large percentage of the population are unlikely to ever adopt broadband. In both scenarios however, maintaining or increasing average revenue per customer for existing customers (ARPU) is crucial."
Gartner advises broadband service providers to reduce their focus in consumer markets on price cuts and to develop additional services within their offerings that address new user needs. This includes additional download bandwidth and storage for online music, photo storage, wireless connectivity, firewall protection and security services.
"Without value-add, providers have to resort to price as a short-term differentiator, which leads to price reductions. With service differentiation, the competition is no less intense, but by giving the customer more value wrapped into the price they already pay providers can maintain their revenues."
Richardson highlights the importance of building profitable bundled services by carefully modelling customer use patterns.
"ARPU continues to decline across Europe, however, in the most competitive countries such as France and Sweden, the slide has slowed dramatically, with the level of bundling becoming more of a competitive differentiator than basic package price."
She says that revenues can be further increased by sourcing wholesale providers, whose own pricing models limit the cost of providing unmetered services, for example offering per connection rather than volume-based peering charges for increasingly popular voice over Internet Protocol (VoIP) services. She also says that developing partnerships will become increasingly important, particularly for regional providers looking for a national presence or for vertical integration with content or service partners.
"Given the tremendous growth in broadband penetration we have seen in Western Europe in recent years, a slowdown is inevitable," Richardson says. "However, by developing additional services and focusing on the kind of service innovation continuum we have seen in countries like France, providers can enjoy long and successful relationships with customers for years to come."