A Western European country bordering the North Sea between France and The Netherlands, Belgium features flat coastal plains in the north-west, central rolling hills and rugged mountains of forest in the south-east with a population of 10.5 million people living in 4.2 million households and a population density of 339 inhabitants per square kilometre. The level of urbanisation is particularly high. In fact, the percentage of the population living in rural areas has been estimated at only 2.1%[i].

 

GDP per capita at $35,750 was the fifteenth highest in the world in 2005 according to the International Monetary Fund. This compares with Luxembourg at $75,130 which is the world's highest GDP per capita, and the UK placed thirteenth at $36,599[ii]. GDP per capita in Wales stood at around 79% of the UK figure, which equates to around $28,915[iii].

 

The telecommunications sector became fully liberalised in January 1998 and is regulated by the Belgian Institute for Postal Services and Telecommunications (BIPT) which was established in March 1991. BIPT is a semi-governmental body and its independence from the Ministry of Telecommunications has been the subject of debate. A failure to implement EU directives resulted in infringement action being taken against Belgium by the European Commission in 2003. BIPT's independence has been strengthened by subsequent legislation, although it is still subject to some governmental control.

 

Due to the very high coverage of both DSL and cable networks the government has no plans to use public funds to bring broadband to under-served areas. The government target is to have 2.5 million households and 500,000 SMEs connected to broadband by the end of 2006. The intention is for this objective to be realised mainly through two actions: an improvement in the offer of services and reduced retail prices as a result of increased competition[iv].

 

Traditionally, both DSL and cable operators have offered very high baseline speeds: 3Mbps and 4Mbps respectively, at relatively low prices compared to other EU countries. As a result, broadband penetration was very high in the early development of the market: Belgium had the highest broadband penetration in Western Europe at the end of 2002. However, growth of new connections failed to keep pace with other leading Western European nations, such as Denmark and The Netherlands, which prompted the federal government to call upon operators, in November 2003, to put on the market a 'light' offer, with lower prices and reduced speed.

 

The government also sees broadband as a key area for enhancing communication between the different communities and regions (Flandres, Wallonia, Brussels).

 

The Belgium Internet Broadband Application (BIBA) is an initiative started during 2002 by the Belgian Minister of Telecommunications to foster broadband applications development. The BIBA platform allows industrial players to launch new services based on existing technologies with a real market potential and SME oriented. The pilot applications are in the health, security, e-learning or teleworking sectors[v].

 

The government has invested in a federal portal offering interactive applications such as "tax-on-web", and is committed to the development of further broadband enabled applications[vi].

 

The "I-Line" project, launched in 1998, has connected schools, libraries and hospitals to the internet. Since 2002, the government has ensured that these are broadband connections based on special tariffs[vii]. Libraries can get an ADSL I-Line connection without cost, while schools and hospitals are charged EUR37 per month for an ADSL I-Line connection[viii].

 

In order to stimulate the use of ICT in businesses, there have been a number of marketing activities to demonstrate the advantages of broadband technology to SMEs. These include the Agoria road show, which ran between 2001 and 2002, on "virtual entrepreneurship"[ix].

 

The Institute for Broadband Technology (IBBT) is a research institute founded by the Flemish government, focusing on ICT in general, and applications of broadband technology in particular. Its research concentrates mainly on the eGovernment, eHealth, eMedia and mobility and logistics application domains. Its stated strategy is to:

 

§         Perform demand-driven research programs, focused on the development of generic knowledge;

§         Perform company-specific R&D-projects with and on the initiative of the industry and the service sector and/or participation in European research programs;

§         Provide its researchers and partners with a research test environment for broadband networks;

§         Establish and monitor a forum with the goal of creating a broad network between all economic, scientific and social actors concerned[x].

 

 

With regards to privatisation of the telecommunications market, the incumbent operator, Belgacom, was privatised by the government in December 1994 but retained a monopoly of the Belgian telephony market until January 1998. Belgacom continues to be majority owned by the state, which has a 50% share in the company. During May and July 2005 Belgacom bought back some of its shares in EUR100 million batches, having announced in February 2005 that it would buy back shares to a maximum value of EUR300 million.

 

 

As regards international bandwidth, Belgium had the fifth highest level per inhabitant in the world in 2004, according to the International Telecommunications Union (ITU), with over 11Mbps per person. Denmark had the most at around 35Mbps per person and the UK had the fourth highest bandwidth at around 13Mbps per person[xi].

 

The national railway company, SNCB/NMBS, has built a fibre backbone network running alongside its railway network. This is used to provide Ethernet over fibre connections to large businesses and is also leased to third party operators[xii]. Belgacom, Telenet and Versatel (now part of Tele2) are the other national backbone operators. A number of international operators are also present with backbones connecting several Belgian cities.

 

 

 

In terms of ICT usage, the latest available figures show that in 2003 56% of households had a PC[xiii]. Furthermore, 50% of all households had access to the internet at the end of 2005. These figures are slightly below average when compared to penetration levels for OECD countries, for both PC and internet penetration of households. Iceland has Europe's highest levels of PC penetration, at 86% of households, and internet penetration, at 81% of households[xiv].

 

 

Figure 1 - Residential PC and internet penetration, OECD Science, Technology and Industry: Scoreboard 2005

ISPA Belgium (Internet Service Providers Association) has indicated that a problem for further internet growth in Belgium still remains the low PC penetration in households. However, an initiative from the federal government and the ICT sector to offer packages which are fiscally deductible is expected to narrow this 'digital divide' gap[xv].

 

Belgacom have also identified basic low ICT penetration as a barrier to further broadband growth in the market. It has identified three key conditions for ensuring high penetration of broadband technologies:

 

§         PC penetration

§         Online penetration of PC population

§         Broadband penetration of online population

 

 

 

 

At the end of December 2005, broadband lines were calculated to be around 2.1 million. This represents growth of around 370,000 connections, or 17.5% during 2005[xvi].

 

Figure 2 - Total broadband subscriptions by country, OECD, December 2005

The market growth compares poorly with the 33% growth reported across the OECD[xvii] and the 37% growth worldwide[xviii] for the same period; indicating that there has been a slowdown in the Belgian broadband market.

Figure 3 - Broadband growth over 2005 and broadband penetration by population, OECD Broadband Statistics, December 2005

Analysys Research forecast that there will be around 2.25 million broadband connections by the end of 2006.

 

 

Figures from the OECD place Belgium in tenth position in the OECD in terms of broadband penetration per head of population; with a take-up of 18.3% in December 2005. This figure places Belgium ahead of the OECD as a whole, which had an average penetration of 13.6% of the population. Iceland, with a broadband penetration of 26.7% of the population, had the world's highest penetration, leading Korea (25.4%) and The Netherlands (25.3%). The lowest broadband penetration within the OECD was in Greece at 1.4 broadband connections per 100 inhabitants[xix].

 

Figure 4 - Broadband penetration by population, OECD Broadband Statistics, December 2005

The high penetration levels in Belgium are largely due to the early introduction of broadband services with relatively high baseline speeds of 3Mbps and the very high levels of availability; 98% of the population was covered by broadband services as early as the end of 2002.

 

Figure 5 - Broadband penetration by households (top ten countries), World Broadband Statistics Q4 2005, Point Topic, December 2005

As regards broadband penetration per household, according to Point Topic, Belgium had a penetration of 43.5% of households in December 2005; this places Belgium outside the top ten countries in the world. This is far lower than the household penetration in Korea, the highest in the world, which stood at around 78.5% of households at that time. The highest household penetration levels in Europe were in Monaco at 69% of all households, while The Netherlands and Denmark also score highly with 58% and 54% respectively[xx].

 

 

In terms of the business market, there are around 700,000 businesses in Belgium; with small and medium sized enterprises (SMEs) accounting for around 97% of them. Latest figures in 2004 show that 96% of all enterprises with 10 or more full time employees had internet access. The figures also show that 70% of all enterprises with 10 or more full time employees used a broadband connection. Both figures are well ahead of the OECD average[xxi].

 

 

Figure 6 - Internet and broadband penetration of businesses, OECD Science, Technology and Industry: Scoreboard 2005

 

 

As regards broadband infrastructure, by the end of 2005 ADSL coverage had reached 98.5% of households. Cable infrastructure is also well developed, covering more than 95% of households, a large proportion of which has been upgraded for bi-directional broadband services.

 

 

Figure 7 - Estimated broadband coverage, Analysys Research, September 2005

High coverage of broadband was achieved very early compared to other countries. This was largely due to the high levels of urbanisation which made deploying networks covering a high proportion of the population very easy. According to Belgacom, ADSL coverage had reached 98% of the population as early as the end of 2002[xxii].

 

 

 

In terms of broadband services, in December 2005, the dominant technology was DSL; accounting for 61% of total broadband connections. Cable accounts for almost the entire remaining share with a 39% share of total broadband connections[xxiii].

 

This is a relatively even split between the two technologies, compared to many other Western European markets where DSL is by far the dominant technology, and can be attributed to the high coverage of both DSL and cable technologies .

 

Figure 8 - Western European broadband market by technology type, Analysys Research, December 2005

 

ADSL services were first launched by Belgacom in April 1999. However, a wholesale bitstream service that was acceptable to the regulator, BIPT, was not offered until July 2001. This gave the incumbent a head start over alternative retail DSL providers, resulting in a very high share of the retail DSL market[xxiv].

 

The Belgian market has experienced some consolidation over the last few years. France Telecom and KPN withdrew from the market in early 2003 and, in December 2004, Tiscali sold its Belgian assets to Scarlet Telecom[xxv].

 

Most of the alternative DSL service providers today offer either wholesale reselling or bitstream products, resulting in limited product differentiation in the market place.

 

An important innovation was Belgacom's launch, in November 2004, of the first VDSL service, available for a monthly subscription price of EUR59.95 and providing to the subscribers up to 9Mbps downstream. The service has since been upgraded to offer download speeds of up to 17Mbps and up to 400kbps upload speeds[xxvi].

 

There is currently no wholesale VDSL product available from Belgacom. Other operators have begun rolling out ADSL2+ networks to compete with the higher-bandwidth VDSL product. Some of these operators are complaining that the VDSL service is hindering their rollouts due to frequency interference between the two standards over the local loop[xxvii].

 

 

Local loop unbundling was made available in January 2001 in an attempt to introduce greater infrastructure competition into the market. However, the first loops were not unbundled until the latter half of 2001 due to numerous disputes between the incumbent and the regulator. The LLU market is regulated on a retail-minus basis (i.e. LLU access prices are set on the basis of the end-user or retail prices of the corresponding final services. The discount off retail prices is usually set as a fixed percentage of the retail price).

 

 

Figure 9 - Unbundled DSL lines as a percentage of total DSL lines, ECTA, December 2005

Considering the maturity of the broadband market LLU has only a very small percentage of DSL lines. Figures from ECTA show that 9,400 local loops were unbundled by the end of December 2005. This represents 0.7% of the DSL market; one of the lowest LLU shares of the DSL market in Western Europe[xxviii].

 

 

Scarlet Telecom has emerged as the major alternative broadband player in Belgium and aims to have 75% coverage of Belgium by mid-2006 with ADSL2+ capabilities[xxix]. Scarlet offers both ADSL and SDSL over unbundled local loops and is aggressively targeting the residential sector. Scarlet increased its subscriber base in December 2004 after it completed the acquisition of Tiscali Belgium for EUR19 million[xxx]

 

An emerging player in the market is Tele2 which has become a major player through its aggressive pricing strategy. In July 2005, Tele2 announced its intention to acquire Belgian operator Versatel. Having previously concentrated on reselling, the move allows Tele2 to shift to a facilities-based operation using Versatel's LLU network. Tele2 currently offers the cheapest 4Mbps service in the market and also has a subscription free ADSL service with time-based charges[xxxi].

 

 

The cable sector in Belgium features a distinct north-south divide. The Dutch speaking north is dominated by Telenet, while the French speaking south has 11 local cable operators. UPC Belgium dominates the Brussels area. Telenet and UPC have completed upgrades to their networks allowing bi-directional broadband services[xxxii]. Telenet is also moving beyond its cable footprint by offering services via DSL. 

 

Early take-up of broadband services was stimulated by the cable sector which dominated the broadband market until the beginning of 2002 when DSL connections overtook cable connections for the first time.

 

Despite their extensiveness, cable networks are not subject to LLU regulations.

 

 

Fixed Wireless Access broadband licences have been granted to three operators. Clearwire launched FWA services in May 2005, covering 50% of the Brussels area[xxxiii]. Take-up however has been very slow and Analysys Research estimates that there were only around 1,000 FWA connections in the country at the end of 2005. This would account for less than 0.05% of all broadband connections.

 

In terms of public access wireless hotspots, Telenet had more than 1,000 wireless hotspots throughout Belgium and Luxembourg by the end of January 2006[xxxiv], while Belgacom had around 650 at the same time[xxxv].

 

 

There are currently no initiatives for the provision of residential fibre connections. However, a number of operators provide fibre connections to businesses. Analysys Research estimates that there are around 3,000 fibre business connections.

 

 

 

In terms of operators, the Belgian telecommunications market is dominated by two major players: Belgacom (DSL) and Telenet (Cable). Belgacom has a very large share of the DSL market due to there being little competition from LLU operators; Belgacom lines accounted for 99.3% of all wholesale DSL lines in December 2005. This equates to 61% of all wholesale broadband connections. Telenet connections accounted for 30% of all wholesale lines at the end of 2005[xxxvi].

 

Figure 10 - Wholesale and retail shares of Western European incumbent operators, Analysys Research, December 2005

 

There are relatively few retail ISPs in Belgium in comparison to other Western European markets. According to ISPA Belgium, 95% of all internet connections were supplied by just 35 ISPs[xxxvii]. This low level of competition has resulted in Belgacom having a high share of the Belgian DSL retail market; in December 2005, Belgacom subscriptions accounted for 77% of the DSL retail market. This equates to 47% of the total broadband retail market[xxxviii].

 

 

 

Until mid-2005 bundling services in Belgium was illegal and as such triple-play offerings are new to the market. However, faced with a slowdown in the broadband market, many operators are now beginning to focus on triple-play propositions. Telenet has taken an unconventional approach to bundled services in that it does not offer any discount for customers subscribing to more than one service. Despite this, it is one of the leading triple-play operators and at the end of 2005 it had 176,000 triple-play customers[xxxix].

 

IPTV

 

Following a six month trial with 1,000 households, Belgacom launched its IPTV service, Belgacom TV in June 2005. The service includes 55 television channels, including live Belgian and Italian football matches, VoD, personal video recording and internet browsing on TV sets. At the end of 2005 Belgacom TV was available to around 60% of the Belgian population and some 33,000 Belgians had subscribed to the service[xl].

 

Telenet launched its commercial iDTV service in June 2005 following its acquisition of Canal Plus Vlaanderen (CPV), the Flemish operations of Canal Plus from Vivendi in November 2003. Telenet also offers PC-TV services, including video on demand and music downloads.

 

 

Telenet launched a VoIP service in July 2004. By the end of 2005 it already had 175,000 customers[xli].

 

 

One of the main threats in the market to Belgacom comes from fixed-mobile substitution. PSTN lines in service have declined since reaching a peak of over 4.5 million in 1998 to less than 3.7 million at the end of 2005. This has been the result of the replacement of second lines for internet access by broadband connections and fixed-mobile substitution. Some 26% of households were mobile-only by the end of 2004[xlii]. This is very high when compared to the UK where around 8% of households are mobile-only. The figure for Wales is between the two at 13% of households[xliii].

 

Versatel (now part of Tele2) offers a broadband and fixed telephony bundle using VoIP. It has also launched MVNO (Mobile Virtual Network Operator) and intends to incorporate mobile services in future bundled services.

 

To combat the fixed-mobile substitution trend, Belgacom has launched a win-back campaign. This included a service with a reduced monthly rental charge of EUR6.50, instead of the usual EUR16.80, designed to persuade mobile customers to take up a fixed-line service. It is also targeting existing residential customers with retention deals[xliv].

 

There is no retail naked DSL offer in the market. However, one of Belgacom's bitstream DSL offerings is effectively a wholesale naked DSL service and as such, the presence of broadband-mobile bundled services is increasing[xlv].

 

 

 

In terms of pricing, the cost of basic 'first generation' broadband packages has traditionally benn low when compared to other Western European markets. However, Belgium has not seen the aggressive pricing strategies experienced by markets such as France and The Netherlands and as such, prices for 2005 are slightly more expensive than other Western European markets. The cost of a 0.5Mbps service was around EUR30 per month in 2005, whereas in the UK, France and The Netherlands similar services cost around EUR20-25 per month[xlvi].

 

Residential 'second generation' broadband services were priced at around EUR60 per month at the end of 2005. These are similar to the prices in The Netherlands but are considerably more expensive than in France where 'second generation' services are typically available for EUR30-40 but are available for as little as EUR15 in some unbundled exchange areas[xlvii].

 

Providers continue to battle for the high-end market. Both Telenet and Belgacom have upgraded their networks to support higher bandwidth services. The highest bandwidth offers that were available in the market at the end of 2005 were UPC's chello extreme 20Mbps service, Telenet's 20Mbps ExpressNet Turbo service and Belgacom's 17Mbps VDSL service. All services were priced at EUR59.95 per month[xlviii].

 

There had been no attempts to gain a foothold in the low-end market until early 2004, when many operators introduced low-cost versions of their services to improve the conversion rate from dial-up to broadband and to attract new users. An important innovation was the "ADSL Light" model, as a time-based service allowing reduced monthly cost of a broadband subscription. Versatel was the first operator to launch a subscription-free, pay-per-minute ADSL product in December 2003. Belgacom also introduced its own time-based tariff in January 2005. ADSL Time offered two hours access for EUR4.95, with each additional minute charged at EUR0.043. Both companies claim that they haven't cannibalised their existing revenues but the market has not seen a significant increase in conversion rates from dial-up to broadband and overall growth has slowed in comparison to other Western European markets[xlix].

 

Belgacom is also targeting niche segments with its Easy Start service, which was launched in September 2004. Aimed at the over-55s, the service includes one of Belgacom's ADSL services, a day of training on using the internet and an hour of training on online banking[l].

 

 

The Belgian broadband market is highly developed compared to other broadband markets in Western European (such as France, Germany and the UK) in terms of the overall penetration of broadband services – despite the relative weakness of the country's internet market and low PC penetration. This is due to the extensive availability of broadband services over both DSL and cable infrastructure and the high baseline speeds offered by operators during the early development of the market.

 

Broadband penetration levels are amongst the highest in Europe at 18.3 broadband connections per 100 inhabitants at the end of 2005. This is still some way short of reaching tele-density levels; Analysys Research estimated that there were 66 telephone lines per 100 inhabitants at the end of 2005. This suggests that there is plenty of scope for further broadband growth in the market.

 

However, growth in new broadband connections has begun to slow. Initiatives by broadband operators to lower subscription rates in order to attract new customers by introducing 'light' services have only had a limited effect.  This reflects the relatively small size of the potential market which is the result of low PC penetration. The biggest challenge to the market will be to encourage people without a PC to purchase one. The proposed fiscal measures that are to be introduced to lower the financial barriers to purchasing a PC may help overcome this barrier. However, with PC prices falling over the past few years, it has been noted that the barriers may not be financial.

 

In this mature market, Belgian access providers are offering high-bandwidth services, with 20Mbps downstream services available for around EUR60 per month, although Belgium has not experienced the aggressive pricing seen in other Western European markets such as France. It should be noted however that high-bandwidth services are unlikely to drive broadband adoption or increase the average revenue per user without the requisite content and services. As such, focus in the market has moved towards the delivery of content, particularly TV services and triple-play packages.

 

The increasing presence of mobile in telecoms bundles reflects the fact that fixed–mobile substitution is particularly strong in Belgium with around 26% mobile only households at the end of 2004 compared to The Netherlands which has around 12% mobile-only households and Wales which has 13% mobile-only households. 

 

In 2005, Belgium's broadband market is mature when compared to most Western European markets. However, declining growth, low levels of competition within the DSL sector, particularly with regards to LLU, and low penetration of PCs are creating barriers to further development which will have to be overcome if Belgium is to retain its position as one of Europe's leading broadband nations.

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