Although investors have all but deserted Europe’s Internet stocks, the number of Internet users in Europe continues to grow. Demand for broadband is rising, albeit more slowly than expected (Exhibit 1), and the new popularity of on-line subscription services actually offers, for the first time, the prospect of substantial revenues from Internet users. Such conditions should attract entrepreneurs—independent Internet service providers, portals, content originators, and software service developers. But one deterrent remains: the hold maintained over the Internet access market by ISPs belonging to Europe’s incumbent telephone companies.

Telco ISPs have certainly enjoyed powerful advantages in building their customer bases. Nevertheless, for these companies, too, subscription services are the route to badly needed revenues, and even the biggest don’t have sufficient resources to develop such services alone; they will need partners. Europe’s Internet industry is thus shifting from a winner-takes-all game to one in which the greatest rewards will go to companies that share their assets. Entrepreneurs—at least if they find the right partners—can look forward to important opportunities.

Europe remains different

The telcos’ hold over the Internet in Europe often puzzles those familiar with the Net in the United States, but the two markets developed in very different...