europe

T H E - I N T E R N E T - I N - E U R O P E

RACE FOR THE EUROPEAN ONLINE MARKET

Frank Maurer -- Universität Kaiserslautern
Agostino Poggi -- Universitá degli Studi di Parma
Helmuth Ritzer -- Daimler-Benz Research and Technical Center Berlin
While it is true that the Internet is a worldwide web of servers, the Net is different in different parts of the world. If you are in Europe versus the US versus China, you will encounter different providers and telecommunication infrastructures.

You will confront different laws, cultures, political systems, and languages. Some of these differences may disappear in the future, but they are vividly present today. We are going to take a closer look at these differences from a European perspective. We hope to make you more aware of the current situation and give you an insider's look at upcoming trends.
During the past decade the European online market has been dominated by the national telephone companies. In Germany, Deutsche Telekom, now the second largest telco in the world, introduced BTX (Bildschirmtext) in the early 1980s. Elsewhere in Europe there was Minitel from France Telecom, Prestel from British Telecom, and Videotel from Telecom Italia, all quite similar systems. It was the original intention of the telcos to use the new technology as a replacement for all kinds of paper-based directories like the yellow pages.
Because these systems were independently developed by the national telcos, they used a proprietary technology that was tightly coupled to the national phone systems. The telcos even offered a sort of graphic terminal with an integrated phone set to access their networks.
For example, BTX was an IBM mainframe-based system accessible only through ordinary phone lines, and used a transmission protocol called "Datex-J" (Deutsche Telekom has their own naming conventions for their protocols, all starting with Datex). The display standard, CEPT--the HTML-standard of the BTX system, so to speak--was more or less character based, although through the use of user-defined character sets it was possible to transmit low-quality color graphics (320 * 200 pixels) to the terminals.
GERMANY'S BTX

In 1994, the year the Web became popular in Germany, BTX technology was clearly doomed to fail. Nevertheless, in 1994 Deutsche Telekom offered its BTX customers (who then numbered 600,000) the newly developed but still backward-compatible KIT system as part of a new service called T-Online. Even though KIT technology is very similar to Web-browser technology, it still ignores common Internet standards like HTTP and HTML. Users no longer need a special terminal (also true for BTX in its later years). Instead, customers get something called an "software decoder": a piece of software that runs on an ordinary PC and emulates the previous hardware terminal.
To attempt to be more competitive, T-Online now offers a gateway to the Internet in addition to its own services. The Internet material is handled by a standard Web browser. In this case T-Online acts like an ordinary ISP giving you access to a proxy server.
Most of the useful services on T-Online are not free. Customers must pay fees to the many companies that do business within T-Online, such as commercial banks and the reservation system of the Deutsche Bahn, and they also pay for connection time on a metered basis even if they only use T-Online as an entrance door to the Internet (more about this later).
From the perspective of companies doing business within T-Online, this model seems to be attractive.
Let's take the example of an electronic marketplace like a virtual mall. T-Online, like CompuServe and similar providers in the US, can offer the necessary hard- and software infrastructure, including services like site creation and maintenance, accounting functions and, due to their centralized architecture, secure online transactions. Another example is online home banking, one of the main reasons for T-Online's success. Almost every major German bank offers all kinds of home-banking services only within T-Online.
With the introduction of new technologies like secure protocols and public-key encryption, T-Online will eventually lose this advantage. A few German banks did open their own Internet branches within the past few months, and rumors abound that other banks will soon follow.
FRANCE'S MINITEL

There are many similarities between the French and the German system, even though France Telecom used different transmission and display protocols for their own online service, Minitel. (The British and Italian systems are basically the French system under a new name.) But there is one thing that makes Minitel unique--it is probably the biggest stand-alone online service in the world. Today Minitel has about 15 million (!) users using about 7 million Minitel terminals.
From 1983 to 1990 France Telecom gave about 4.5 million terminals to their customers for free. With a population of about 60 million people, France probably has the highest percentage of online users in the world. During the past decade France Telecom invested about $2 billion in their system. Despite this, the more advanced terminals offered to customers in 1994 offered connection to a system that was already obsolete compared with the booming Internet. Right now France Telecom is trying to incorporate the Internet in the same way that Deutsche Telekom did. The new service, Wanadoo, combines the old-fashioned Minitel with its 25,000 services and an Internet gateway using a new PC-based system. It remains to be seen if France Telecom can keep its huge customer base--their own projections are for 2 million Internet users and around 10 million installed PCs by the year 2000. Whether its Minitel customers will purchase the new expensive PCs is an open question.
THE NEW ISP MARKET

In 1994 the first smaller Internet service providers (ISP) appeared in Europe. These ISPs offer unlimited Internet access at much lower rates than the telecoms. Whereas the ISPs charge up to $40 per month for unlimited access (average rate, $25 per month), T-Online, for example, charges $5 per month and additionally bills you $4 per hour for every online hour. But don't forget--you still have to pay for the phone line in both cases, and the typical monthly fee for a phone line in Germany is about $15 per month. Worse yet, the meter is always running--at an average rate of $3 per hour for local calls.
These high long-distance and local phone rates (as much as three times higher than US rates) constitute a proverbial "toll" on the information highway in Europe. To avoid them, many Europeans use their computers at work to access the Internet. In the US, users can dial into a local point of presence (POP)--in Europe the smaller ISPs have POPs in major cities only, which means that the POP for a small town in the south of France might well be Paris, and the connection will be billed as a long-distance call. High long-distance phone rates give major providers like T-Online and CompuServe a definite advantage over the smaller ISPs, especially in terms of Internet access during business travel. The major providers offer dial-in points in every major city in Europe, giving you access to their networks through local phone calls.
GENERAL MARKET TRENDS
The European telecommunications market is changing rapidly. All of the European Union countries as well as Switzerland and Norway will denationalize their state-owned telecommunications monopolies in 1998. Deutsche Telekom, for instance, went public in 1996 and will completely lose its monopoly in 1998; Telecom Italia partially lost its monopoly in 1995 and will go public in 1997. This new open market will, it is hoped, lead in the long run to lower fees and the development of new technologies. We'll tell you more about the coming deregulation in future columns.
Nevertheless, Deutsche Telekom and T-Online seem to be well set for the future. In October 1996 T-Online had a customer base of 1.2 million customers that was growing by 50,000 new members per month. T-Online expects a growth rate of 25 percent in 1997. In contrast, CompuServe has about 300,000 customers in Germany. After their first few months, an alliance of America Online and the German Bertelsmann Group--one of the biggest media companies in the world--are close behind with 150,000 users as of October 1996. AOL Bertelsmann Online expects to have 700,000 users all across Europe by the end of 1997.
Not everyone in the Internet race emerges as a winner. In August of 1996 the former Europe Online SA went bankrupt. Relaunch occurred in October 1996 by a group of former supporters and employees who banded together, purchased the rights to the name, software, and services and established the nonprofit Europe Online Association. The honorary advisory board lists Netscape's Jim Clark as one of its members, among other prominent figures.
Europe Online no longer acts as an ordinary Internet provider. The primary goal of the organization is to represent Europe in its different flavors on the Internet, acting as an integrator between the different cultures within Europe.
We will continue to keep you informed about the race for the European online market. Experts predict use of the Internet to grow even faster in Europe than in the US in 1997 because of forthcoming stagnation in the US online market. It will be interesting to see if Europeans will switch to smaller providers, or if the telcos will change their billing policy, as occurred in the US with AOL.
Many obstacles, such as high phone rates, will need to be overcome for this growth to happen. As we write it is not clear how all of these factors will influence the development of the Internet in Europe. But we guarantee you a front-row seat!

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