New DSL products could close ISPs

New, cheap 'ADSL Lite' products that separate access from content are great for incumbent telcos, but will put internet service providers (ISPs) and portals out of business, according to a report by analyst Forrester.

But while separating access from content makes sense for the incumbents it will create a nightmare for ISPs and portals, which have been struggling to offer content alongside services.

With the exceptions of T-Online and Wanadoo, European incumbents' ISP or portal offerings have struggled to create unique selling propositions or to generate profits, the report claimed.

"ADSL Lite dooms second-tier ISPs and portals like Tiscali and Supanet," said Forrester.

"The incumbents' lower retail access prices, powerful bundling potential of internet access with telephony, and superior IT services skills will be too much to handle."

It pointed out that Terra Lycos' portal is losing money, and that its ADSL offering has been eclipsed by that of its parent Telefónica.

The report stated that entry-level broadband prices must drop below €30 (£19) a month to entice the mass market.

ADSL Lite has lowered the cost of entry for telcos, tapping into new price-sensitive market niches and fighting stiff competition from cable companies.

Forrester praised BT's new service at £27 as being nicely positioned against NTL's offering at £25 per month.

The report said that the best way for ISPs and portals to differentiate would be to unleash the communication potential of user-generated content, which it valued at a potential €85 (£53) per user in 2007.

It added that cable companies needed to open up their cable internet platforms to external ISPs, and start wholesale TV services for telcos or utilities looking for the triple play of voice, TV and data.