AOL European Strategy. It's Different Over Here.

IanFogg | August 09, 2006, 06:34 PM

I've written about AOL's ISP sale before. This post just adds a few additional thoughts.

AOL is getting out of access in Europe for the opposite reason to the US. In the US, it's too hard to be a broadband ISP; in Europe, it's too easy.

In most of Europe it's perfectly possible to be in the game and compete against the incumbent as a broadband ISP. There are over a hundred broadband ISPs in the UK alone, and five major ISPs that each have over a million customers. But this competition is driving down broadband access prices, and so making the ISP access business a very challenging one to be in, or at least to make any profits. Admittedly, the German market is harder for a competitor broadband ISP, than either France or the UK, but it's still possible.

In the US, the broadband market is akin to golfing match play. There are a series of one on one battles between a cable operator and a telco. It's harder for an ISP that isn't an infrastructure owner, such as AOL, to enter the game let alone be competitive.

AOL has another incentive to sell up in Europe. The European incumbent telcos are active competitors in each others' fixed markets, this is quite unlike the US. Many of them -- such as Telenor, TDC, Telefonica, and Telecom Italia -- have been on the broadband ISP acquisition trail recently. This, plus interest from other operators, has pushed up the prospective sale price for AOL's access businesses. Now appears to be an attractive time for AOL to cash in.

The challenge for AOL will be how to build a solid portal business in Europe. Many of the leading portals in Europe are run by ISPs: T-Online, Freenet, Web.de, and France Telecom among them. They leverage a solid understanding of country-specific content markets and a local brand.

Ironically, even when AOL stops being a European ISP, it will still be competing with European ISPs, whether AOL likes it or not.