Access: still the key to the internet economy

This is understandable. A number of economic factors, both in the US and Europe, are unsettling investors and making them wonder whether the equity markets, which have enjoyed a prolonged period of growth, popularity, and relative stability might be entering a phase of retrenchment. An indication of this nervousness was seen yesterday, when hints of inflation in the US economy - and therefore of higher interest rates - coupled with a tweaking upwards of European interest rates by the European Central Bank, sent markets in Europe tumbling, before some semblance of calm returned by the close of trading.

Under such conditions, it is very important that one interested in the internet and new media spaces over the long-term is able to step back slightly to see the wood from the trees. This could help to turn the present volatility to one's advantage for those looking for a second chance to identify future opportunities.

Every so often, there are landmark events in the internet and new media industries which represent a quantum shift in the overall nature and extent of this nascent sector. Unsurprisingly, they are usually associated with the most fundamental aspect of the sector: access.

Access is the lifeblood of the whole high-tech/new media economy as it delimits the economic universe or horizon of the entire market. In geographical terms, breakthroughs in access would be similar to the discovery of a new continent. In the UK, every development in access has led to a substantial increase in both the number of users on the internet and spending associated with the internet.

The trend started with the advent of cheap mass access which coincided with lower PC prices as a result of the rapid development of CPU technology and the world-wide crash in the cost of memory chips. This made home PC-based access affordable to significant chunks of the population, providing the first hint of the commercial potential of the new medium. Subscription-free access followed, with similar effects, and unmetered access is now pushing the boundaries even further. The announcement by BT that it is to launch its long-awaited BTopenworld ADSL-based broadband service over existing telephone lines in July for a monthly fee of 39.99 is another milestone in this path.

Already, other access providers are positioning themselves for the opening up of the local loop, or “last mile” of the telephone system into the homes of consumers. This is likely to be in spring next year, unless the UK regulator, under pressure from the Government or the European Commission, that is talking about unbundling the local loop by the end of the year, forces BT into an early move.

Fourteen companies have already been selected by Oftel to participate in a trial unbundling of the local loop in Battersea, Edinburgh, Leeds and Belfast. There are also some alternative services already in action. Hull-based Kingston Communications is already offering an ADSL service throughout East Yorkshire through KIT, a 50:50 joint venture with BSkyB with ‘always on' internet access at only 14.99. The acquisition by Atlantic Telecom of First Telecom creates another alternative, with Atlantic's broadband wireless technology and First Telecom's fixed line and small business market position promising an early alternative to BTopenworld's small business ADSL offering.

On the ISP front, the advent of broadband will polarise the access market further. Dialup will become even more commoditised as high-intensity, sophisticated users move to broadband. That means more unmetered offerings, more new users being enticed online, with positive spin-offs for e-commerce and online advertising. On the negative side, ISPs without higher-added value broadband offering of their own will see revenues shrink and might even face a threat to their very survival. Further consolidation along the lines of Atlantic/First Telecom could be round the corner.

Broadband also opens up a whole new market with the combination of TV quality picture, hi-fi quality sound and internet interactivity offering totally new services and non-PC access boosting the vanilla internet market even more. With greater bandwidth to fill, more and richer content will be needed. Looking down the list of more than 40 content providers for the consumer side of the BT offering, one will see a large number of what were termed, up to now, as internet start-ups sitting side-by-side and as equals with the established traditional media groups. One wonders how many of the investors running for the b2c escape hatches had factored into their maths the effect of this new market?

In their present nervous state, it seems unlikely that the capital markets will be looking at this long-term picture. Traders have positions to close and turnover targets to meet, retail investors - who have played such an important part in the enthusiasm surrounding internet and new technology stocks - would have to have nerves of steel and the faith of a saint in the future of these unquantifiable and complex scenarios to resist the temptation of getting off the roller coaster. Internet entrepreneurs who where only too happy to get the quick returns from the markets when the going was good, goaded on by venture capital investors eager for a quick exit, should not complain now that the going has got bumpy. But investors who look a few moves ahead in this chess game and who are checking off the milestones on the access roadmap as the market grows and develops and are not deflected by the various extraneous events along the way, will be well placed when the numbers start to add up.