VCs Eyeing European Infrastructure Companies

The European broadband and wireless industries have the attention of venture capital firms and the financial community, it was revealed at a panel session at the Streaming Media Europe 2000 conference today. The wide-scale rollout of affordable broadband services is seen as being the catalyst that will cause the European streaming market to explode, and broadband wireless networks capable of supporting streaming applications to always-on portable devices represent a wealth of potential - if some key obstacles can be overcome.

The VCs see an investment opportunity in European DSL companies, if they can take advantage of the unbundling of the local loop from the national telecom carriers -- a move expected to invite competition among broadband service providers, and thus to bring prices down. Henricus J. Stander, chief information officer for the EFT Group, believes that the local loop unbundling is still at least a year away in the U.K., while the process has just begun in Germany, and no specific plans have been announced in France regarding the issue.

In the broadband wireless arena, there was some concern expressed that government policies could hinder the development of wireless service providers - European spectrum license auctions held this year saw huge prices paid for the rights to provide 3G (third-generation wireless) services. Given those prices, clearly only the big players can afford to enter the space. British Telecom, for example, paid 4 billion pounds for such rights in the U.K.

The financial community, in general, is concerned that this will translate into very high costs for the end-user, and thus limit the acceptance of 3G wireless services. However, many of the licenses also have mandatory adoption rates included in the fine print, forcing service providers to bring services to market at a reasonable price in the short term.

With wireless service providers heavily pre-taxed by the license auction, investors may also want to look toward the wireless device market.

It also became clear in the panel discussion that venture capitalists are shifting their focus away from content companies toward infrastructure providers. According to Dr. Ali Parse, executive director of the communications media and technology group at Goldman Sachs, that streaming companies with the capability to launch successful IPOs will be those involved in infrastructure. Others on the panel agreed that nobody is looking to invest in Internet content companies these days. "Pseudo is dead proof of that," stated Derek Norton, principle at Los Angeles-based Entertainment Media Ventures.

"If you are in original content production for the Web only, cut your losses and close down. Go work for Bertelsmann for a while and come back in three years," Stander said.

But while VCs may not be interested in considering content as an investment opportunity, the future financial viability of content dominated the conversation on the panel.

Norton believes that starting or building a content company is not necessarily a bad idea right now. Companies that acquire rights-based content will prove highly profitable in the future, he said. Parse added that this is the time to establish a brand, though it may not yet be financially advantageous.

"At first, Hollywood built the studios, and everyone talked about the studios. After the studios were built, people only spoke of the stars," commented Norton.