Grim forecast for Europe's ISP community

While companies and consumers enjoy the free ISP bonanza, telecoms consultant Analysys predicts the party is nearly over.

A report -- Internet Service Providers in Western Europe -- published today by the Cambridge-based firm predicts that within two years the number of ISPs in Europe will have halved.

This harsh new landscape will lack small service providers who will, according to the report, be either squeezed out or bought up. Report author Philip Lakelin explains: "There is not enough room in the market for everyone." Lakelin predicts a future dominated by network providers like BT and Energis, consumer giants like Dixons and Virgin and media providers like BSkyB and the BBC.

High street banks will jump on the ISP bandwagon Lakelin predicts. "Think what banks could do if they ever get their act together. They could offer full online banking and underwrite huge credit transactions. There is big incentive for banks to run online services, not least the fact it would be much cheaper," he says.

Unlike detractors who claim the free model will not make money, Lakelin is convinced advertising, e-commerce and content will pay the bills for the free ISPs. In order to differentiate themselves in a competitive market, service providers will be forced to offer unique or specialised content he says.

Those who continue to charge could find themselves in difficult times says Lakelin who is not convinced, for example, that AOL can resist the free model for much longer. "AOL is tending to fight hard against the current towards free access, but unless it can force the market round to adopting free telecoms it will not be sustainable," he says.