TELECOMMUNICATIONS: MORE COMPETITION AND CONVERGENCE IN 2005.

• Position: Markets

New entrants on the broadband market now occupy almost 50% of the market. Although many rely on incumbents' networks to provide services, the Commission indicates that there is a significant move to unbundled local loops [local networks opened up to more telecoms companies], with increased service quality and differentiation. Average EU penetration (lines per 100 people) stood at 11.5% in October, compared to 7.3% in October 2004. Moreover, the five best-performing member states (the Netherlands, Denmark, Finland, Sweden and Belgium) outstripped the United States and Japan. The Commission also notes that the countries with the highest penetration all have high cable penetration too.

There has been a significant shift in the pattern of access to incumbents' networks over the year. New entrants are gradually shifting from resale and 'bitstream' access towards local loop unbundling in the provision of broadband services.

Average EU penetration of mobile services reached 92.8% in October 2005, with faster growth in the ten new member states, of which three, the Czech Republic, Estonia and Lithuania, exceeded the notional 100% mark for the first time. By September 2005 there were around 15 million subscribers to 3G services in the EU (the majority in Italy and the United Kingdom). Fifty eight operators now offer commercial services.

Despite the fact that revenues in traditional fixed line voice telephony are falling, the report notes that this remains the largest source of revenue for fixed operators (euro 85.8 billion in 2005). In fixed line voice telephony services, only 8.3% of subscribers can be accessed directly by new entrants. However, the growth rate of subscribers using alternative operators has begun to slow, possibly as a result of win-back campaigns by incumbent operators but also, in a market moving towards integrated bundles of services such as voice, internet access and audio-visual content, because the provision of voice alone via carrier pre-selection may not be a sufficiently attractive proposition.

Cross-border investment.

The number of acquisitions and mergers has increased significantly and cross-border transactions (according to a prudent Commission estimate) are now worth more than euro 70 billion, the highest level since 2000. The largest European incumbent players had non-domestic EU revenue shares averaging 15% (ranging from 5% to 27%). While significant levels of debt remain in...