But where some in the online education industry see an obstacle, others see an opportunity. Because Europeans tend to go to work directly after secondary school, they have a stronger tradition of on-the-job training -- just the environment that e-learning companies are depending on to grow their market. Indeed, research firm IDC predicts that in Western Europe the total online education market will soar from $320 million in 2000 to $3.9 billion in 2004.

That's still tiny by comparison to the U.S. e-learning market, which industry analyst Legg Mason estimates will reach $40 billion by 2004. But while their spending power is smaller, some expect Europeans' enthusiasm for e-learning to be higher.

"I would not be surprised if in three years the penetration rate of e-learning were higher in the UK, Germany, Spain, and France than it is on average in the U.S.," says Andrew Rosenfield, founder and CEO of UNext, a Deerfield, Illinois, online education startup.

CHEMISTRY PARTNER

In January, UNext and the Open University Business School (OUBS), the UK's largest academic institution, partnered to create an e-commerce course titled "Get the Net." The course consists of five one- to two-hour online courses revolving around the Internet. OUBS plans on repurposing UNext's U.S. courses for OUBS alumni as part of its continuing education program. According to Mr. Rosenfield, OUBS is impressed with UNext's technology, and the two institutions are experimenting with developing their own online courses together.

OUBS is one of several UK institutions moving into e-learning. London-based publishing giant Pearson (NYSE : PSO) (which owns the Financial Times, among other publications) has invested heavily in online education in the U.S. It bought National Computer Systems, a software company that targets the kindergarten through 12th grade (K-12) education market, and the Family Education Network, which develops software for parents, teachers, and students. Additionally, Pearson announced its Learning Network, an education portal for K-12, higher education, professional development, and lifelong learning.

Back in Europe, FT Knowledge, a division of the Financial Times, has jumped to an early lead among providers of online education. By November 2000, the company had formed partnerships with the University of Pennsylvania's Wharton School of Business and with Michigan State University to offer executive education in an online format. FT Knowledge's deal with Wharton consists of one five-week online e-commerce course targeted to upper middle-management. FT Knowledge has also announced an alliance with Britain's Cambridge University to create a so-called E-MBA and is working with Insead, an international business school based in France, on its Insead online program.

In November and December, Insead offered its first online course on e-commerce and wireless technology through its Singapore campus. Insead partnered with Icus, a Singaporean e-learning software provider, and Nokia (NYSE : NOK), which offered WAP handsets to each of the students. How much they used the WAP phones for the course has yet to be determined, says Soumitra Dutta, Insead's dean of technology and director of Insead Online. Insead Online currently plans to offer only Insead content, but Mr. Dutta says it could become a provider for other institutions in the future.

Online education will become a component of higher learning throughout Europe and the UK, though online MBA degrees will not set the world afire. Rather, companies will spend money on further education courses in topics like e-commerce, knowledge management, and marketing on the Internet. High-level e-commerce courses are leading the way in e-learning, since one of the fastest areas of growth is online corporate training. For large firms with many employees working from various countries and remote locations, training online has obvious benefits.

France-based Arianespace now competes for launch business with Boeing (NYSE : BA). Alcatel (NYSE : ALA) of France and Astrium (a joint venture of European aerospace power EADS and Britain's BAE Systems) each have nearly as many communications satellites on order as the U.S. big three: Boeing, Lockheed Martin (NYSE : LMT), and Loral Space & Communications (NYSE : LOR).

SPACE: THE FINAL MILE FRONTIER

European operators are counting on rising demand for broadband to boost their bottom line. Skeptics aren't so sure. They point to the wild expansion of fiber-optic networks and free-falling bandwidth prices and suggest that satellite broadband could be relegated to a niche market.

Satellite backers tend to cite two points. Space is a quicker, less-expensive solution to the last-mile problem -- connecting homes and businesses to the network -- than building new fiber pipes. And satellites can go where fiber-optic networks can't, or won't. Although fiber is quickly wrapping the major metropolitan areas of Europe and North America, in the rest of the world more Internet service providers (ISPs) rely on satellites than fiber, according to Comsys, a UK-based consultancy. Companies like SES-Astra figure they can make good gains as broadband expands in Asia and Latin America.

More satellites are planned for launch during the next decade than are currently in orbit. Technology powers like Microsoft (Nasdaq : MSFT) have shrugged off recent satellite disappointments and are making major investments in the capital-intensive satellite business. The challenge for all satellite firms, European or otherwise, is to find a way to eke out profits.

Direct-satellite Web access runs about $100 a month, roughly five times more than terrestrial systems. This may be too much for residential users, but it's within reason for small and medium-sized businesses. "Even if the cost of satellite broadband access never falls to fiber-optic levels, there are still growth opportunities," says Comsys analyst Jeremy Rose. Comsys expects the satellite broadband market to grow by more than 70 percent per year, becoming a $15 billion business by the end of the decade.

ORBITING IPOs

The largest satellite operator in Europe is Luxembourg-based SES-Astra -- SES stands for Société Européenne des Satellites -- which is now expanding into Asia through its stakes in Asiasat. Inmarsat, a major satellite operator based in the UK, is seeking to expand with a planned July offering. Eutelsat, operator of the largest network in Europe, hopes to privatize this year and offer shares in the company by 2003.

Investors have largely ignored the satellite industry since the high-profile flops of Iridium and Globalstar. But some believe the sector is poised for major growth. Most satellite backers agree that Iridium and Globalstar were flawed models, that telephony and TV broadcasting alone may not be enough to support a business. The hope is that by adding a third component -- broadband Internet access -- satellite operators will have a shot at profit.

But it won't come cheap, and it won't be easy. Craig McCaw's Teledesic plans to launch almost 300 satellites to carry its global broadband system. Says Ray Peterson, an analyst at market research firm Forecast International, "The technical challenges and expense of deploying nearly 300 satellites in space may prove too daunting for even a telecommunications visionary such as Mr. McCaw."

Europe has special constraints. For streaming media to work in Europe, content must be cached close to viewers. While European bandwidth is growing at a phenomenal rate, much of this new capacity has not reached the end user because of national telcos' control over "the last mile." The resulting bottleneck not only requires companies to use bandwidth judiciously, it also keeps prices artificially high. Also, because each market has its own specific content needs due to different cultures and languages, caching near the end user comes in especially handy in the region.

So what does all this mean for the business landscape in Europe? Distribution companies like Akamai Technologies, Digital Island, and Network Appliance are going to be in high demand.

GONE IN SEVEN SECONDS

Anyone who has surfed extensively in Europe knows that you often spend a strangely long amount of time waiting to download sites, even if you are using a broadband connection. This certainly gets Web site managers up in arms. With this in mind, caching companies use the seven-second rule: if content does not load in seven seconds, viewers will not come back to the site. Those same companies also say that the only way to comply with the rule in the current environment is to store data close to the end user -- big pipes will not do it. Caching allows users to get their download in the three- to five-second goal set by the caching companies. "The broadband producers have to deliver a better experience than their predecessors on the narrowband. Otherwise, people will not bother with it," says Joe Frost, marketing director/Europe at Inktomi. Caching is now its way to guarantee that experience. "If you are relying on the standard infrastructure, you are not going to survive," says Amit Pandey, director of net cache marketing at Network Appliance.

Despite the current network inefficiencies, it's still hard to ignore the nuts-and-bolts evolution in Europe's infrastructure. National telecoms like Deutsche Telekom, as well as international carriers like KPNQwest and PSINet, are building out new fiber-optic networks throughout the continent. In addition, several carriers are implementing asymmetric DSL technology, which will expand by ten times the capacity of standard copper wires already in place. And to connect the continent, several companies, like Global Crossing and WorldCom subsidiary UUNet, are installing new high-capacity undersea data cables, which will triple capacity by 2002. Meanwhile, companies are opening data centers in more than a dozen of Europe's major metropolitan areas, and many more are planned for the coming months. Analysts estimate that all this new infrastructure will increase European bandwidth by as much as 50 percent per year over the next three years, while wholesale bandwidth costs should decline at a similar rate. And with the intensive rollout of fiber-optic networks, wholesale prices in Europe have dropped by 60 to 80 percent this year alone, says Ajay Gambhir, an analyst at the technology research firm Ovum. As prices continue to fall, it will lead to freer bandwidth consumption, which in theory means that users will enjoy affordable, speedier connections.

THE LONGEST MILE

Unfortunately, that doesn't appear to be the case. While the basic infrastructure is vastly improving and prices are dropping, consumers aren't reaping the rewards of lower bandwidth prices at the carrier level. National telcos throughout Europe still own the connections that run from the network into the buildings, which is, in most cases, a standard copper telephone line. Because the telcos still have a monopoly over the so-called local loop -- and can still extort exorbitant sums for bandwidth access -- retail bandwidth prices are much higher in Europe than in the United States, where competition is fierce. "More than 40 percent of bandwidth cost in Europe is in the last mile," says Jay Pultz, research director at the GartnerGroup, a technology consultancy.

The relatively high costs at the local-loop level have made caching all the more important for most data flow and especially streaming media. By caching data at strategic locations, operators can alleviate choke points where data can be stalled significantly. Yet deregulation in Europe may force several incumbents to open up local access to competition by the end of the year, which could bring down retail costs significantly.

Even with falling prices, the telcos themselves are waking up to the need for content distribution services. They have enlisted the aid of big caching names like Akamai and Inktomi to protect their turf from new interlopers. The advantage is that they have already paid off infrastructure that new competitors have just added. "The telcos have begun putting a lot of effort into content delivery networks," says Mr. Pandey. "Things will change when they get into the game, because they own the infrastructure."

The clear sign of the telcos' recent interest in Akamai and Inktomi is that caching, as well as more efficient content distributing, has taken on special importance in Europe. Streaming media needs it. The large bandwidth requirements of streaming media would quickly clog the pipes if content were not stored closer to the end user. Consider one startling example given by Mr. Pandey. If someone were to distribute the U.S.-based cable channel Television Food Network, which has about 100,000 viewers, on the Web using streaming media at current transfer rates, it would consume 20 percent of the entire Internet. Imagine if Survivor went live on the Internet in Europe.

Until now, four major players in the caching space have emerged with several different solutions to solve network inefficiencies. Both Inktomi and Network Appliance provide content distribution software for use on partner servers. Akamai provides content distribution services, as well as servers, and places itself further down the chain. Digital Island, primarily an ISP and Web-hosting company, got into the content distribution business when it acquired Sandpiper last year. While competition among these players is already pretty intense, analysts say it's only going to heat up further as this nascent segment matures.

BOUNCING BACK

Keep in mind there is more to content distribution than caching (why else do caching companies sniff at being called caching companies?). These companies find methods of routing information so that it passes through the fewest steps between the server and its ultimate viewer. In many cases, they help avoid the boomerang effect, in which data travels much farther than necessary. For instance, say someone sitting in Rome wants to download an Italian Premier League soccer game. Even though the data is sitting on a server only a few hundred miles away in Milan, it passes through routers in Richmond, Virginia, then to London, and back to Rome. And each switch can cause delays.

Take this a step further and consider that streaming media content is generally intended for local, regional, or national audiences. In Europe, this is especially true. It is unlikely that many Greeks will want to watch Big Brother in Swedish (offered by Chello Broadband of the Netherlands), even though some Swedes may be vacationing in Greece and want to catch up on the television show. So content that is mostly viewed by a specific audience is cached at a nearby location. "There is not that much transnational content," says Luc De Clerck, managing partner of Streamcase, a streaming media company in Belgium. To make this content flow as seamlessly as possible, the content must be routed through the fewest number of switches. Once again, caching is the best solution.

ADDITIONAL RESOURCES

Jupiter has a Web site dedicated entirely to caching.

Research firm Telegeography has lots of facts about the infrastructure of caching.

The most serious problem with P2P networking is security, for both companies and individuals. If companies cannot protect against having their files pirated from P2P networks, they will simply not use them. On the flip side, P2P's lack of security opens up privacy questions for individuals because P2P traffic can be closely tracked on the network.

Widespread P2P usage also poses technological problems. Not only do these applications chew through large amounts of bandwidth, they can also reroute the flow of network traffic, because computers are connecting directly instead of through a specific server. But while some companies have considered these issues and determined a P2P policy -- whether for or against it -- a surprising number remain unfamiliar with the technology, except perhaps through media coverage of Napster.

P2P VS. IP

As Napster 's legal woes amply illustrate, P2P presents serious hazards for any company choosing to open the intellectual property (IP) on its hard drives to the Net. This is especially true internationally: even if a company can pursue copyright violations within the U.S., chasing violators halfway around the world is often impossible. Regulators trying to catch up with technology are drafting legislation, but currently, technology has a wide lead.

"The problem is that technology moves fast, but legislation moves quite slowly," says Jorgen Blomquist, director of the copyright law division of the Geneva-based World Intellectual Property Organization (WIPO), the principal body dealing with international IP issues.

Companies soon will be able to adopt file-swapping systems, at least between the U.S. and Europe, thanks to a bill in the pipeline brought by the European Union. The EU is in the last stages of ratifying its portentously titled Directive on Copyright and Related Rights in the Information Society. This directive is quite far-reaching: "Both the person making available a copyrighted work and the person downloading a copyrighted work would violate the forthcoming EU law," says an EU spokesperson.

This would bring Europe's legal protections in line with those of the U.S. Final approval of the measure, though, may take some time; 16 different representatives need to sign off on it. For the rest of the world, the WIPO and the World Trade Organization (WTO) have several international laws and treaties governing IP.

SOME ARE MORE EQUAL THAN OTHERS

Yet despite these efforts, most piracy on the Internet goes unpunished. In many countries (especially developing ones), enforcing international copyrights is not a priority. So software pirates in, for example, Nigeria or China, traffic without fear of repercussions. "The problem in developing countries is really one of enforcement -- either the law was not being enforced, or the law was not adequate," says a WTO spokesperson.

But even if legislation and treaties officially guarantee companies' IP rights, they still won't end online violations. In fact, the WIPO and WTO advise companies to encrypt data to protect themselves when using P2P networks. Encryption is also critical to track IP. Firms may give some items, like open-source Linux code, unrestricted access, but they would be unwise not to protect proprietary material in some way. Merely restricting access to its networks is often not enough; further security, such as digital watermarking (which allows for authentication of a given piece of software), may be needed. "In peer-to-peer networks, the issue of authenticity becomes all the more important," says Scott Moskowitz, CEO of the watermarking firm Blue Spike.

Surprisingly, many technology companies don't understand the implications of P2P, partially because of poorly defined terminology and partially because few use applications based on the technology. Even Cisco Systems , the soi-disant networking leader for the Internet, is not using any clearly defined P2P applications. It's concerned about the safety of IP available on such systems. "Companies are ultimately faced with the notion that either you have to put lots of security on any item you put on the network, or you will have to turn it into shareware," says Phil Smith, director of business development at Cisco.

One possible solution to this comes from Europe, although the P2P startup wave has not yet crested there. Paris-based Zden , founded by Denis Harscoat, uses a vault-based model, where members can gain access to songs, video clips, and other files, and are allotted space for their own creations. Since the access to the files is controlled and members have separate accounts, they can buy, sell, or exchange different titles by credit card or by using "zees." (Initially, 1,000 zees are equal to $1, says Mr. Harscoat.) Interestingly, Zden is similar to the U.S.-based Flycode , a "copyright friendly" exchange for visual content founded by original Napster investors.

THE PUSH TECHNOLOGY OF THE 21ST CENTURY?

Beyond security, infrastructure concerns are P2P's other albatross. If adopted widely, the large volume of data in transit would require a great deal more bandwidth. One can only imagine if MP3 files (which are several megabytes in size) were swapped like email (which amount to several kilobytes each). Networks would require something like a thousand times more capacity.

Several universities and businesses have already banned Napster and similar technologies due to bandwidth constraints rather than copyright concerns. Earlier this year, Indiana University banned Napster and all other file-swapping programs when it discovered that Napster was consuming 50 percent of the total university network.

Other technological problems include interoperability among applications and development of new applications. A clutch of information technology companies, from Intel and IBM to Hewlett-Packard , have formed the Peer-to-Peer Working Group to tackle these issues. The group had its first meeting in October, where the new members discussed strategies for keeping the momentum going for P2P.

PEER REVIEW FOR INTEL

Intel is a leader in implementing P2P network applications -- or at least ahead of the curve in communicating its use of P2P. In addition to capturing spare computing cycles (through a program it calls Netbatch), Intel is beta-testing a multimedia training system for employees. In this system, large files are transferred only once on the wide area network (WAN), from the U.S. to the UK for instance, then distributed as appropriate on each office's local area network (LAN) LANs are much cheaper to send information over and have much more bandwidth. Intel says it's not worried about security because all of its P2P applications operate inside its corporate firewall. Critics, though, question its adoption as self-serving: Intel and others are well positioned to exploit the need for more chips to power P2P.

Other companies remain very uncertain about P2P networks. If such corporate giants as IBM, HP, and Ford have a plan for P2P, they're not saying. (IBM, however, is providing servers for Zden.) Microsoft says security is keeping it from experimenting further with P2P. According to Adrian Morris, marketing manager at Microsoft UK, the success of encryption will play a major role in whether or not companies will adopt P2P applications. Mr. Morris notes that the development of microtransactions, which will facilitate financial exchanges on networks -- including those of the P2P variety -- will help.

The few experts following P2P still believe in its enormous potential. However, the practical snags, from security to data traffic, have made some analysts skeptical about it ever reaching the mainstream. "The P2P sector has been months away from breaking open for several years now," notes analyst James van Dyke of Jupiter Communications.

While European consumers may find the low euro vexing when they buy American-made goods, most companies and venture capitalists in Europe don't seem to be the least bit bothered. Several large technology companies, such as Siemens (OTC: SMAWY) and Philips, have benefited as a result of a cheaper euro, which makes their products less expensive in export markets compared to those from the U.S. For smaller companies whose trade remains mostly within the "eurozone," the exchange rate never comes into play.

The low euro also has increased the strength of venture capitalists with dollar-based funds, which may provide another boost for startup businesses on the continent. But the euro exchange hasn't been a major factor for VCs because they can hedge investments in specific national currencies, such as the French franc or the German Deutsche mark.

However, a massive capital outflow from Europe to the U.S., the result of investments in American companies, may become problematic if there is a cooldown in America. If investments head south, there will be a major effect on the old-world economy. "If U.S. growth slows down, as some predict, then the rest of the world will follow," says Neal McKinnon, a currency strategist at Merrill Lynch in London.

WEAKNESS IS STRENGTH

Many market observers believe the overall effect of a depressed euro is good. "Europe has more to gain from a weak currency than from a strong one," says Oliver Burgel, a researcher at the London School of Business. In addition to larger companies in the technology sector, startups also stand to benefit more than they suffer as a result of euro exchange rates, he says, adding, "except if the startup sources most of its raw materials from the U.S."

The euro has edged up from its all-time low of 82.28 cents against the dollar in late October to its current level, but it is still about 24 cents below its initial valuation of $1.10 when it was launched 22 months ago. Most analysts think it's unlikely the euro will show much of an increase anytime soon. What may be most troubling, however, is the ECB's inability to affect the exchange rate. Although the latest interventions this week had little effect, an intervention in late September (which had the support of the so-called G7, the seven most industrialized nations) pushed up the exchange against the dollar by several points.

According to the ECB, the interventions took place as a result of the destabilizing effect of the euro on the world economy. In one respect, the interventions were successful in that they provide investors with a key to when the ECB may intervene again in the future -- some argue at about 86.5 cents. This will provide additional stability for the currency, analysts say.

BORE AND GUSH

One reason why the ECB purchased euros on its own was that the United States was too busy with its presidential election. What it did not count on was that the U.S. would still be busy with the election two days after the voting ended.

Both candidates are expected to continue to pursue a strong dollar policy, which will keep the euro at its present levels or perhaps even lower. Analysts say Vice President Al Gore will follow in the footsteps of his predecessor, who has pushed the dollar up to its current level. If George W. Bush is declared the winner, the economic policies pursued by his administration will likely push the euro even lower against the dollar.

Late Tuesday night and early Wednesday morning, the euro's movement showed a distinct correlation to the U.S. election results as they came in, according to a chart published by the Times of London. The euro hit its high point at 2 a.m. GMT on early (incorrect) news that Mr. Gore had won Florida, then fell to its nadir about five hours later -- about the time he called Mr. Bush to retract his concession.

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Things are improving for Egg, which reported late last week that third-quarter losses had decreased to Ј34.4 million ($49.9 million). However, analysts still predict it will lose about Ј164 million ($237.8 million) for the year. The UK insurance firm Prudential (no relation to the US firm of the same name) owns a majority stake in Egg. Prudential floated a minority stake in the online bank in June. But, the shares had fallen to 125 pence ($1.81) on Thursday from the offering price of 160 pence ($2.32).

To some degree, Egg gained the first-mover advantage with its launch online in April 1999. Part of its success is also the result of a crafty business plan. "The Egg strategy is an interesting one: get the customer through the door with an interesting rate on a savings account, then get them thinking about other offers," says Mamoun Tazi, an analyst at Schroder Salomon Smith Barney in London.

Egg says that its appeal was due to offering competitive rates on a select few products, which it could do because of low administration costs. But for Egg to be successful now, it must focus on services with higher returns, such as credit cards, Mr. Tazi adds. Egg does not offer checking accounts, although it plans to begin offering them during the first quarter of next year, according to an Egg spokesperson.

EGG-CEPTIONAL

Analysts are relatively bullish about Egg's prospects over the long term. With 1.2 million customers -- it added 120,000 during the past quarter -- it is far ahead of its online competition. By comparison, Cahoot, the online effort of UK-based Abbey National Bank, has only 45,000 customers. But Cahoot has been more fortunate than most online efforts in that at least its service is up and running, says a company spokesman. Another bank, Halifax, delayed the launch of its online division IF (Intelligent Finance) three times, and it is now little more than a phone banking service.

Another competitor is First-e Group, based on France's Banque d'Escompte and owned by Enba, a holding company in Dublin created by European entrepreneur Gerhardt Huber. In addition to ambitious launch plans for Europe and the U.S., First-e has merger plans with Uno-e of Spain to create an UnoFirst group. The resulting complex conglomerate could prove difficult to explain to customers and analysts alike.

Egg's early presence also has enabled it to create a strong brand name in the Internet banking scene. "Egg has already established a kind of customer loyalty," says Peregrine Riviere, an analyst at Morgan Stanley Dean Witter in London. "One key to its success going forward is to establish bonds with the real world, such as its recent tie-up with the Boots pharmacy."

Even though Egg is clearly the largest bank online, it is small by traditional bank standards. Its valuation at Ј1.5 billion ($2.2 billion) is a fraction of Halfax's Ј35 billion ($50.8 billion). Still, the online bank's recognition is likely to make it difficult for an imitation Egg to follow in its footsteps. "There's a limited appetite for another stand-alone Internet bank like Egg," says Martin Cross, an analyst at Tether & Greenwood.

Online banking is also catching on in Scandinavia, though there it is more a case of traditional banks migrating their customer base online. The most successful of these is MeritaNordbanken, a subsidiary of Nordic Baltic Holding of Sweden, which has moved 20 percent (about 1.8 million) of its customers online.

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After several big-time players, including giants Intel and Motorola, warned investors of mildly disappointing earnings, a downward spiral among technology stocks was triggered both in the U.S. and elsewhere. Yet ARM's stock price has been relatively stable over the past week, and industry sources agree that chip demand has been growing at healthy rate. "A lot of the large companies were over-optimistic about their projections, so they ended up disappointed. We were a bit conservative with ours," says Warren East, chief operating officer at ARM.

ARM, which stands for Advanced RISC-based Machines, attributes its gains to strong demand from semiconductor makers for chip designs during the previous quarter. It also has benefited from robust demand for telecommunications equipment. About 85 percent of cell-phone handsets use ARM processors, and the company will grab an even greater share of market in the future, analysts say. At the same time, analysts warn that ARM must expand beyond the telecom industry if it wants to maintain this growth.

Overall, the company reported that profits for the quarter ended September 30 had increased to Ј8.8 million ($12.8 million) on sales, up 68 percent to Ј26.4 million ($38.5 million). The outlook for the rest of the year is also quite good, the company says. But the future is hard to predict, especially in the semiconductor industry.

"The reason ARM keeps surprising investors is that about one-quarter of its revenues comes from royalties on designs that are now moving into production, and even [ARM] cannot predict how the chips will ship," says analyst Andrew Griffin at Merrill Lynch in London.

ARM had one of the most successful and earliest IPOs of any UK technology company, raising $114 million in its mid-1998 offering.

AD INFINEON

Third-quarter results are not out yet for Europe's largest chip maker, German-based Infineon. The company, 71 percent owned by Siemens following a highly successful public offering earlier this year, says it sees no problem with the semiconductor market, however. "Despite the recent developments among technology stocks, the semiconductor market is experiencing a boom," says a company spokesperson.

The company is quick to point out that more than half its sales are outside Europe. Analysts note the cheaper euro also has helped Infineon in terms of export prices. In addition, analysts predict chip prices will improve across the board as a result of seasonal buying.

Against this backdrop, the overall tech sector was clearly troubled this week. Motorola, the second-largest handset maker behind Nokia and a leading semiconductor maker, announced Wednesday that it expected total worldwide unit sales would be approximately 25 million lower than previous estimates of between 425 million and 450 million. As a result, Motorola's share price dove nearly 20 percent on the day, taking other stocks in the sector with it.

When chip making giant Intel announced it would not make its third quarter in late September, its shares fell by nearly 40 percent, unleashing a sell-off of tech stocks felt worldwide. Both Intel and Motorola blamed slower-than-anticipated sales in Europe, a consequence of low euro valuations, for their disappointments.

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Yet, Web hosting companies say demand for rack space in Europe will far outstrip the additional capacity under construction. This may be true, but the influx of new capacity also will increase competition among Web-hosting companies. The new Internet hotels from international players such as Global Crossing, KPNQwest , Level 3 Communications , PSInet , and UUNet also must contend with smaller, regional providers.

Global Crossing subsidiary GlobalCenter plans to open new data centers in Paris, Amsterdam, Munich, and Frankfurt by year's end. A much larger data center to open later in Dublin should expand the company's European capacity several fold. Global Crossing, a leading player in transatlantic fiber-optic cables, announced a $6.5 billion merger in late September with Exodus Communications to acquire GlobalCenter. Santa Clara, California-based Exodus already has a leading Web-hosting presence in Europe. Additionally, Exodus and Global Crossing have formed a ten-year network-sharing agreement.

Other big players have similar plans. KPNQwest, a leading Web hosting company in Europe, has doubled its combined European Web-hosting capacity this year, due to its new, 100,000-square-foot "mega-cyber center" in Munich. The company is planning 18 of these facilities over the next two years. Meanwhile, KPNQwest, PSINet, UUNet (the wholly owned Worldcom subsidiary), and others, including national telecoms like Belgacom , are also building vast fiber-optic networks.

BIGGER BACKBONE

The building of new fiber-optic backbone networks is rapidly increasing the bandwidth available to these new data centers. The bandwidth of the European IP backbone is expected to triple by 2002, according to a study by the U.S.-based technology research firm Probe Research . "There is still a shortage of bandwidth supply, but this may change as early as the end of this year," the Probe report states. However, the companies themselves say they anticipate exponential growth of demand for bandwidth.

Even with this strong growth in demand, analysts expect that the cost of bandwidth on networks will decline sharply -- and with it, revenue from standard Web hosting. As a result, most players decline to identify themselves as strictly Web hosting companies. "Much revenue comes from higher-margin activities, such as managed services, but it's erroneous to think that there is not money to be made from hosting," says Bruce Stewart, executive vice president of international and corporate development at GlobalCenter.

Even though bandwidth costs are expected to drop over the coming months, the end user will likely see little change for some time after. "This new capacity has not filtered down to the corporations," says Susen Sarkar, principal analyst at The Yankee Group in Cambridge, England. The additional bandwidth does not reach most businesses and residential users because it cannot cross "the last mile," he says. The last mile refers to the local loop access, often owned by the national telecoms. Up to 40 percent of total bandwidth costs are consumed in the last mile, according to analysts.

Deregulation to allow freer access to the local loop is expected to take place by the end of the year. In the meantime, some companies have decided to bridge the gap themselves. For instance, Global Crossing is building a network linking its London data center to adjacent businesses, bypassing British Telecommunications . "It currently takes BT from 60 to 90 days to connect companies to the Internet, which creates an incentive which is enormous," says Wim Huisman, CEO of Global Crossing Europe.

There's good reason for the wireless explosion occurring in Stockholm: the mobile communications giant Ericsson. The company offers a wide base for Swedish startups and is pushing hard for wireless's next generation. But obstacles abound: in addition to the technical challenges in making the wireless Web interesting and workable for the average Joe, there are more than a few cities vying to claim the title of wireless Web capital.

The longest shadow cast over Sweden's wireless industry comes from Finland, whose wireless presence sometimes relegates Sweden to the status of "that other Scandinavian country." Finland is arguably the only country in the world with higher mobile-phone penetration than Sweden, and Nokia, based outside of Helsinki, is one of two companies that sell more mobiles than Ericsson (the other being Motorola). But more wireless startups have taken root in Stockholm than in Helsinki, and there's plenty of pent-up rivalry between the two even though the wars between Nordic powers ended nearly 200 years ago. "The startup culture is stronger in Stockholm than in Helsinki -- there is definitely something going on here," says Martin Svahn, founder and chief technology officer of the Stockholm-based startup Mobyson.

All of this momentum gives rise to Swedes' belief that they can leapfrog the United States by way of the wireless Web. "This is a window of opportunity for Sweden to hold some sort of edge in the global technology game," says Michael Mandahl, CEO of Linq Systems, a wireless software company based in Stockholm. And there is a lot at stake. According to Ericsson, Nokia, and others, there will be more than 1 billion mobile phones in use worldwide by 2003, when the number of mobile Internet users will exceed the number of fixed-line users.

RISING STOCKHOLM

In the past year, the number of new IT companies in Stockholm has doubled; by mid-2000, there were more than 1,200, according to the Swedish government. And about half of these companies are in the wireless sector. At last count, there were 40 wireless companies on Stьreplan, a street in central Stockholm. It is too early to say which, if any, of the startups will be successful. But some of the best bets are companies like Melody Interactive Solutions and Columbitech, that aim to provide integration and support services for the wireless business user.

The growing number of startups has generated a significant amount of venture capital. About 100 billion kronor ($11.2 billion) are waiting to be invested in Swedish startups, according to Fцrvarv & Fusioner (F & F), a Stockholm-based research firm. Some of these VC firms are concentrating exclusively on wireless businesses, such as the Stockholm-based incubator Startupfactory. And the pace of investment doesn't look as if it's going to slow. The number of investments in this area is expected to double this year. And the number of privately owned VC firms in Sweden has risen significantly since 1992, from six to more than 200, according to F & F. "It's a very different game in Sweden than it was one-and-a-half years ago," says Mr. Mandahl of Linq.

Ericsson is the foundation for the current growth of the wireless community. Ericsson and, to some extent, Telia, Sweden's recently privatized telephone company, were instrumental in the growth and development of the modern mobile phone industry (see "Mr. Mobile"). Despite its difficulty in keeping pace with Nokia in the mobile handset market, Ericsson is clearly the leader in building wireless infrastructure, which consists of the base stations, transmitters, nodes, and antennas -- "basically everything that allows you to make a call except for the phone," says an Ericsson spokesperson.

SWEDISH MESSAGES

But there is still a tendency to judge the phone by its cover. The problem with an Ericsson phone, goes the saying in wireless circles, is that it looks like a Volvo: square, black, and heavy. However, Ericsson recently launched several sleeker models, like the R380, which has a keypad that flips back to reveal a Palm-type personal digital assistant screen. Another interesting product popular among short message service (SMS) users is the Chatboard, which is a small, inexpensive keyboard that plugs into a mobile phone.

Ericsson says it plans to offer a major upgrade to the current GSM standard by the end of the year. This new standard, called general packet radio service (GPRS), will offer data transfer speeds that are about double that of the average desktop modem, providing a major boost for wireless application protocol (WAP)-type applications, which on GSM and other current systems run at about one-fifth the speed of a 56K modem.

There's been much fanfare around the introduction of the third-generation (3G) mobile standard known as universal mobile telecommunication system (UMTS). But despite its boost in bandwidth, the degree to which it will benefit suppliers is still uncertain. In late June, Ericsson President Kurt Hellstrцm said the high cost of 3G licenses could delay implementation of the network, which sent a ripple of concern throughout the industry. Although Ericsson and others envision the launch of 3G networks as early as 2004, the actual rollout may come much later, according to analyst Lars Godell of Forrester Research, a market research firm.

Being a country of only 9 million inhabitants that imports much of what it consumes, Sweden is proud of its famous exports. Stikkan Andersson is regularly lauded for creating the music group ABBA, whose music is still heard throughout the world, a tribute to Mr. Andersson's forward thinking.

Swedes themselves make up an essential part of the wireless phenomenon. Sweden not only has a high percentage of mobile phone users, but a high percentage of those are also Internet users. Mobile phone penetration in Sweden is above 60 percent, compared with the United States, where it is only about 25 percent. "If you eliminate the very old and the very young, mobile phone ownership rises to about 100 percent," says Eric Paulak, an analyst at the Gartner Group in Stockholm. But what separates Sweden from other countries that also have high mobile usage is that more than 60 percent of Swedish households have a PC and Internet access, which is also higher than in the United States. Swedes are self-professed early adopters of new technology.

Mobiles, as they are called in Sweden, have become an inescapable part of the culture. In business, mobile numbers are exchanged rather than office numbers. And many young apartment dwellers never install a fixed-line phone. For Swedish teens, sending and receiving short text emails by way of mobile phone, using SMS, is essential to staying in the loop. In a recent poll by the tabloid Dagens Nyheter, Swedes voted their mobile phones, not their cars or clothes, as the item they most identify with.

Swedes are not just talking on their mobiles either -- they're checking their stock portfolios or locating a nearby restaurant. Even though data speeds of the current WAP technology are painfully slow and mobile phone screens are small, many believe that there is much money to be made on the wireless Web as connections and interfaces improve.

The end of the Cold War reduced Sweden's military equipment exports, forcing many companies, including Ericsson, to seek out new areas. But while Ericsson and Nokia still compete fiercely in the mobile handset market, they must also coцperate on several fronts, such as in developing the 3G standards and Bluetooth. If Stockholm succeeds in establishing itself as the new home of the wireless Web, Swedes will have wrested bragging rights from their counterparts in Finland -- and obtained long-sought recognition from the rest of the world.

Write to jarret.adams@redherring.com.

Mr. Mдkitalo envisioned a common system for connecting mobile phones throughout Scandinavia, although in 1976, mobile phone users in Scandinavia, or anywhere, numbered only in the hundreds. He brought in research teams at telecoms from Denmark, Norway, and Finland to create a common analog system known as NMT, or Nordic mobile telephony. When NMT was launched in 1981, it far surpassed anything available in either the United States or Japan. "It succeeded beyond anyone's expectations," he says.

The goal of the second-generation GSM standard was to create a pan-European network with more robust capabilities. The response has been astounding. GSM now counts over 400 million users and is the most widely used standard. According to Mr. Mдkitalo telephones and mobile phones fulfill a basic human need. "People were born to use telephones," he says. "Cutting the wire, that was really the big issue."

As for the wireless Web, Mr. Mдkitalo says mobile phones are not the ideal device, but he is confident they will become easier to use. A key element is further development of voice recognition and speech synthesizers. A partnership between Telia and Oracle called DOF, or the conservatively titled Department of the Future, offers a service that reads stock prices in response to voice. (Another such service is Motorola's Maya.) "It must reach the level of intelligent interaction before it becomes truly useful," Mr. Mдkitalo says.

He notes that a certain kind of intellectual boldness is required to make a technological leap and recalls that there is a Swedish saying that roughly translates as: "Shy boys never get to kiss a beautiful girl." Now all you need is to get her mobile number.

Zden.com uses a vault-based peer-to-peer (P2P) network where members can gain access to a variety of files, songs, video clips, programming code, and the like. Since access to the files on Zden.com's servers is controlled and members have separate accounts, they can buy, sell, or exchange different titles by credit card or by using "zees." (One thousand zees are equal to $1, Mr. Harscoat says). Zden.com, incorporated in Luxembourg, should be the first file exchange in Europe, though there are several on the way in the U.S.

Zden.com's vault-type model is similar to U.S.-based Flycode, which until July (when Apple Computer protested) was known as AppleSoup. Flycode is a "copyright-friendly" exchange for visual content only and is the product of Napster veterans Bill Bales and Adrian Scott. Flycode currently has only a teaser site. Zden.com, which has signed up 40,000 members, plans to go live in November.

Members are granted space for their own creation or simply to store files, which Zden.com calls a "virtual hard drive." The first 300,000 members are allotted 500 MBs of space, which may be adjusted downward later, the company says. In early September, Zden.com formed a partnership with IBM, which is providing its enterprise storage servers for the data.

BIG BLUE BROTHER

Initially, IBM will house the servers from its Web farms outside Paris but could easily add other centers later. Part of the attraction is that IBM is trying to better establish itself on the Internet, and Zden.com was a startup that Big Blue could work with -- basically, all it needs is storage space, and it has a reasonable chance of generating revenue. "This is still a risky venture, but IBM is not a philanthropic organization," says a company source.

Even though Mr. Harscoat would like to see Zden.com stack up a lot of zees, he also hopes it can provide a small source of income for young creative types. "Anybody who is productive deserves to be rewarded, and maybe you can earn a few bucks without having to work part-time at McDonald's," he says. Mr. Harscoat himself admits to having a few tough jobs in the past, including fireman, hotel bellman, and philosopher.

Mr. Harscoat recruited about half of Zden.com's 15 employees from the Rotterdam School of Management's MBA program, where he received his own degree. Zden.com has an international staff, hailing from ten different countries. According to its founders, it is also a fun place to work. "It's a bold new idea and an interesting new market, but really I came here because of the team," says Claudio Limongi, VP of marketing and business development.

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Online exchanges from industries ranging from aerospace to chemical and automotive are becoming so numerous that analysts caution a shakeout is certain. They warn that only one group in each sector will survive. To blame, they say, are the high cost of building exchanges and the difficulty in attracting users.

Already, exchanges set up by dot-com startups are suffering as they encounter competition from industry consortia. Late last week, Efdex, an Internet marketplace linking caterers, restaurants, hotels, and suppliers, shut down after spending $60 million over two years. The site never went live.

Expect still more players to enter the sector, however, as antitrust concerns over such industry consortia are cleared. This week, the U.S. Federal Trade Commission gave provisional clearance to Covisint, a B2B exchange for the automotive industry backed by Ford, General Motors, DaimlerChrysler, Nissan, and Renault.

HOME FIELD ADVANTAGE

CPGmarket.com, based in Geneva, claims it's not about to be squeezed out by its much larger rival, Transora. "There is room for a European marketplace in the food industry," says Stefan Burgstaller, an analyst at Schroder Salomon Smith Barney in London. In the steel business, there are still players, such as SteelScreen, that have done well concentrating on the European market even in the face of giants such as E-Steel, Mr. Burgstaller says.

While both CPGmarket.com and Transora say the market may be big enough for both of them, they are quick to point out their own advantages.

CPGmarket.com contends that as the home player in Europe, it has a natural advantage and an unmatched commitment to the region. "We have a good chance to be the leader in Europe, because we know the European companies, European countries, and European languages," says CEO Yves Barbieux. In contrast to CPGmarket.com's European footprint, Transora plans to launch in Europe and North America next month, going live in Latin America and Asia-Pacific late in the fourth quarter.

In defense, Transora chief strategy officer Rick Herbst says, "We're not just creating a good U.S. offering and deploying it in Europe." Still, analysts doubt that Transora will be able to become a potent competitor in the U.S. while succeeding in every region at the same time. "You cannot develop this effectively for the entire world at once," says Mr. Burgstaller. "At least, nobody has done it yet."

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No wonder there's a heated battle to lead this segment. The two major contenders, Anglo-Dutch CMG and UK-based Logica, both claim to be the largest providers of SMS for the nascent wireless Internet.

CMG LEADS BY A NOSE

But analysts give CMG the lead. "It's a hard call, but if I had to give one of the two an edge, it would be CMG," says Lucy McSetrich, an analyst with Merrill Lynch in London.

What gives CMG an edge is that while it supplies fewer telecom operators with SMS (it has 61) than Logica (which has 92), it claims 65 percent of the market. That's because customers using CMG services send text messages more frequently -- Deutsche Telecom, one of the biggest mobile providers in Europe, is a CMG customer. Coming in at a distant third in the SMS space is the Anglo-French Sema Group.

The winner of this race stands to gain huge dividends. Although actual wireless application protocol (WAP) usage is difficult to gauge at present, Jupiter Communications counts more than 8 billion short text messages that have been sent. By the end of the year, Jupiter forecasts that there will be more than 200 million SMS-capable phones in Europeans' hands. One of the attractions of SMS is that sending a message is cheap -- less than 15 cents. Moreover, even as more complex, Web-like graphics arrive to WAP services, text messages won't be replaced.

The arrival of SMS over the past year already has improved the balance sheet of the contenders -- if not their share prices.

For its fiscal year ending June 30, CMG reported that strong demand for mobile telecom software spurred sales growth of 20 percent to $507 million and earnings increases of 41 percent to $74.7 million. During the same time period, Logica total sales increased 20 percent to $1.2 billion, led by a doubling in sales of SMS software, while earnings skyrocketed 43 percent to $141 million. Meanwhile, overall sales at Sema were up 13 percent to $1.04 billion as text-messaging sales leaped 130 percent this year, and earnings rose 25 percent.

Curiously, the good financial results did little to increase the companies' share prices. Since announcing its results late last week, CMG shares dropped 5 percent to 1,370 pence ($9.44). Logica's stock is largely unchanged at 2,110 pence ($14.55) per share since posting its results on Wednesday. Sema shares also dipped slightly to 1,190 pence ($8.20) per share since releasing results on Tuesday.

Analysts speculated that the share price drops were due to a general sluggishness of the European telecom market sector, and that shares of the three SMS providers are likely to increase later this year.

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In Europe, where mobile phone usage is much higher than in the United States, the number of wireless Web users is expected to exceed fixed-line users within the next five years. This type of growth will surely draw more serious attention from major fixed-line Web hosters like KPNQwest, PSINet, and UUNet.

Fonedata, a wireless ISP in the United Kingdom, is among the new wireless portal players. Simon Luttrell, the chief technology officer at Fonedata, says that if the number of users expands as projected, he will have nothing to worry about. "There will still be plenty of room in the market for all of us," he says.

Some industry players insist that adding wireless Web hosting is no big deal. However, Mr. Luttrell disagrees, saying that hosting wireless is not quite the same as standard Web hosting. Fonedata uses Cobalt RAQ Linux servers, which are specially configured for WML, the wireless version of HTML. Most large Web hosters would have to make a major investment in new equipment to compete in this space, says Mr. Luttrell.

Aside from offering a portal for users of wireless access protocol on mobile phones and other handheld devices, Fonedata hosts sites for all types of wireless content providers, such as the wireless version of Lastminute.com, a budget travel site, and Loot, a London-based classifieds newspaper. These companies then send their content to users, who can make travel arrangements or search for a used car literally while on the move.

However, making it on the European Web-hosting scene is not easy. Unlike the United States, which has similar standards and regulations from coast to coast, Web hosters coming to Europe have to set up operations within many different countries, each with its own language, laws, and standards. Each country also has its own incumbent telecommunications company, known as a PTT. "If a company sets up a connection that passes through Belgium, France, and Germany, I have to deal with three regulators, three authorities, and three PTTs," says Aenil Premji, vice president of strategy and marketing at the GTS Group. GTS is in the process of building fiber-optic backbones in Europe that support several key Web hosters. Some hosters, including KPNQwest, are also laying fiber optics.

The reasons for the growth in hosting come through loud and clear. European companies, like those everywhere, recognize the need to have an Internet presence. Although the cost of Web access in Europe is still higher than in the United States, costs have fallen significantly in the past two years. Companies use various tactics for invading the European market, but most agree that having a global presence makes a difference.

The Web-hosting market worldwide is expected to triple over the next five years, but the majority of this growth will come from custom and managed hosting, according to IT consultancy Forrester Research.

AT YOUR SERVICE

The paradox of Web hosting throughout the world is that it is not so much about Web hosting itself as about the managed services. In the United States, Web access costs have fallen to the point where many companies offer it free as part of a package deal that can include anything from simple IT support to contributing content. Companies that are expanding their European operations say they learned from mistakes in the United States.

Part of the momentum driving the burgeoning Web-hosting sector in Europe is the free fall in the price of telecommunications lines on the slipstream of market liberalization in 1998. Previously, European companies that created content or hosted applications remotely usually did so by way of the United States, because of the low cost of transatlantic bandwidth relative to European bandwidth. For instance, a news site in Madrid, Spain, might have sent its data to a center in Norfolk, Virginia, only for that data to then return to Barcelona.

Until recently, the cost of accessing local lines across Europe was still generally much higher than in the United States. But, after two years of massive telecom infrastructure building across the Continent, that set of circumstances is now gone. Prices have fallen by roughly 50 percent in each of the past two years. It's powerful trends like these that have caught the eye of Europe's sleek new set of Web-hosting companies.

Although many companies have gotten into the Web-hosting game, the commercial strategies they deploy are radically different. Some, like Digex and Exodus, do the actual hosting. Others are building colocation centers where third-party companies can rent out so-called rack space, where they can place their own servers. These buildings, known as Web farms (see "Web Farms Unwired"), allow renters to hook themselves up to high-speed Net access, thanks to telecom providers that have connected these installations to big-bandwidth cables.

Web hosters are expected to add approximately 5 million square feet of space throughout Europe by next year. BT's data communications subsidiary, Ignite, is investing $6 billion over the next three years to expand its backbone network and Web-hosting capabilities, mostly in the United Kingdom. Global players PSINet and UUNet are each adding some 500,000 square feet of racks in Europe by 2001. KPNQwest is also adding several hosting centers and in some areas its own fiber-optic infrastructure.

The rapid bandwidth expansion is likely to trigger a shakeout among Web hosters in Europe, analysts say. A similar consolidation of Web-hosting companies has already taken place in the United States during the past year, while an explosion of new players has entered the fray. "When prices begin to fall in Europe, companies will lose customers to low-cost rivals," says Gerard van Hamel Platerink, an analyst at Shroder Salomon Smith Barney in London.

Even though Web hosters still consider Europe as a whole a greenfield market, the strongest growth is taking place in countries, like Spain and Italy, that trail in terms of established network infrastructure. France is also experiencing rapid growth in the Web-hosting sector.

As Web hosting becomes an increasingly global business, larger, worldwide players will likely gobble up smaller, regional providers, analysts say. Ultimately, the survival of global Web-hosting companies will rely on business from companies that outsource the management of their entire sites.

Write to jarret.adams@redherring.com.