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By YE2005 Pyramid Research estimates that the number of broadband Internet subscribers in Spain will surpass dial-up accounts and by 2009 broadband subscribers will outnumber dial-up by a factor of four. While competition will certainly play its part in stimulating demand for broadband, growth would not be possible were it not for the efforts of incumbent Telefónica de España, which is planning to invest 4.5bn euro over the next four years on broadband infrastructure.
Telefónica´s competitors will clearly benefit from the expansion of the incumbent’s network since they use this network to offer their own services. However, Pyramid believes that despite the fact that broadband coverage will increase, the number of players in the market will decrease in the near future. Above all, the incumbent is intent on aggressively defending its hold on the market and as such plans to match its investment on infrastructure with a similar investment on marketing campaigns designed to drive adoption of its services.
In addition, the government is planning to remove price caps on Telefónica´s wholesale DSL prices by 2006. Associate Analyst Catalina Robledo concedes that while a few players will be able to negotiate lower prices, and increase their margins, others, especially smaller more localized CLECs, will not. “This means that some players will be forced to exit the market because they are unable to compete on service offering, whilst others will have to abandon the race because they will not see any profits. We’ve already started to see consolidation take place, with broadband provider Tiscali up for sale.”
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