By Douglas S. Wood

(CNN.com, June 12, 2000) -- With experts predicting that by 2005 more than 200 million Europeans will be online, it is inevitable that those Web surfers, like their American counterparts, will begin to crave high-speed connections and leave behind the poky download speeds offered by dial-up modems.

Although less than 1 percent of Western Europe currently has broadband access -- offered primarily via a cable modem or digital subscriber line (DSL) -- that is changing.

In Germany, one of Europe's largest markets, International Data Corp. predicts that the number of people with broadband access will jump from between 50,000 and 75,000 in 1999 to more than 5 million in 2003.

Chello, a subsidiary of Dutch cable television operator United Pan-Europe Communications, is already rolling out its version of high-speed access, primarily via cable modems. At the end of the first quarter of 2000, Chello had 180,000 subscribers in Europe, Latin America and Australia, but is adding 3,000 to 5,000 customers a week, according to analysts.

Other existing European telecom companies, including some Scandinavian carriers, France Telecom, British Telecom and Deutsche Telekom, are also planning to roll out DSL or are in the process of doing so.

A report on DSL by The Strategis Group, found that DSL will challenge cable modems for the residential high-speed Internet access market outside the U.S.

The report, "International High-Speed Access: The Residential Marketplace 1999," said that less than 1 percent of the world's households use broadband Internet access. It predicts that combined DSL and cable modem penetration of total households will reach 10 to 30 percent by 2003 in several markets, including Australia, Canada, The Netherlands, Singapore, Sweden, and the US.

'Playing games' with DSL

High-speed access via cable modems and DSL offer download speeds that are measured in terms of megabits per second (Mbps) in comparison to today's dial-up modems, which top out at 56 kilobits per second (kbps). Those faster speeds mean users could enjoy both the rich multimedia content offered on the Web that dial-up modems only hint at and the always-on Internet access offered by cable and DSL.

But regulatory issues, technical limitations and lack of penetration by existing cable systems may hinder the roll-out of broadband access.

DSL is a technology that allows digital data to be sent at high speed over existing cooper phone lines. Most versions of DSL only allow users to send and receive data anywhere from 144 Kbps to 1.5 Mbps, but the line is a dedicated line that is not shared. DSL's biggest limitation is distance as users must be within 18,000 feet of the telephone company's central office to qualify for DSL access.

For Internet service providers to offer DSL, they require access to the existing phone networks. Giving that access is known as "local loop unbundling," which is the opening up of the incumbent telecomÕs copper networks to full competition. So far, unbundling is moving at a very slow pace.

Lars Godell, an analyst with Forrester Research, said the telecommunication companies don't have any incentives to open up their lines to competitors.

"The primary effect of unbundling is to force the incumbent telco to jump start his own ADSL rollout, not to give new entrants great new opportunities," he said.

In Finland and Germany, where unbundling has been under way for several years, Godell said less than 1 percent of lines are unbundled. Forrester predicts that between .5 and 3 percent of Europe's local loops will be unbundled by 2004.

Nigel Deighton, research director for Gartner Europe, said he expects to see a "lot of games played around unbundling," including the co-location of equipment by competing companies at the local phone operator's central office.

"It's very difficult to upgrade somebody's line to DSL as a new competitor if you can't put your equipment in the same building as the incumbent central office," he said. "Those kind of games are all being played."

Cable lacks penetration, will need upgrades

Cable modems, using existing cable television lines, offer download speeds of up to 10 megabits per second. But cable penetration in Europe varies by country and many lines will need to be upgraded so they can carry the two-way data traffic the Internet uses. And because cable networks are shared networks, the network slows down as more people get online.

Europe has widely varying availability of cable television, ranging from less than 1 percent in Spain and Italy to more than 90 percent in Belgium and the Netherlands. In somce cases, existing cable networks will need to be upgraded to handle two-way data traffic required by the Internet.

Deighton said Deutsche Telekom has the largest system in Europe but hasn't upgraded it to handle two-way traffic.

In the U.S., cable operators are not required to open up their lines to competing operators, with the Federal Communications Commission preferring to take a free-market approach. Phone companies have always been required by the FCC to allow competitors to access their networks but cable franchises are regulated by local governments and not the federal government.

The European Commission, the executive body of the European Union, has recommended that member countries mandate phone line unbundling, but the EC is leaving whether to mandate cable unbundling up to individual countries. Godell says opening up cable networks via regulatory measures won't be easy but the market could force the lines to be opened anyway.

"More interesting than the regulatory threat is the cable networks' realization over the next two to three years that they have to open up to stay competitive with players who succeed in the open world using telecom infrastructure," he said.

At least one county will open up cable lines. On June 9, the Dutch government announced that it plans to open the country's cable television networks to competing Internet providers within two years. It previously proposed that the current cable companies keep their monopolies with regular monitoring by government regulators.

Godell expects DSL to overtake cable modem access in Europe by 2002 because copper phone lines are much more ubiquitous than cable lines in Europe, he said.

He also said upgrading cable for two-way access would be costly, while existing copper phone lines can handle DSL with little investment.

Another broadband option is fixed wireless access. The most promising technology is local multipoint distribution service (LMDS), which involves a base station transmitting to a rooftop antenna within a certain coverage area. Users inside the building are connected to the antenna via cables. Deighton said fixed wireless will be a niche market and Godell said it will primarily serve business customers due to its high cost.