Network management Toolkit

Small ISPs being forced into niche services

Tags:
Incumbent,
ISP

David Meyer ZDNet.co.uk

Published: 30 Jun 2006 16:05 BST

Consolidation among large Internet service providers (ISPs) has driven smaller providers into niche, business-centric markets, according to industry observers.

Figures published on Friday showed that 88 percent of the UK broadband market is dominated by the top 10 ISPs, with the top five — in order — being BT Retail, NTL, AOL, Telewest and Tiscali.

In fact, as Telewest, NTL and Virgin.net (at number nine) are effectively one company, the market’s dominance by big players is even more pronounced than the figures initially suggest.

And the picture is likely to change even further with the introduction into the market of "free" broadband services from the likes of Carphone Warehouse and Orange (formerly Wanadoo).

According to Point Topic founder Tim Johnson, whose company conducted the ISP survey, it is relatively easy to set up a small ISP through a "pretty decent off-the-shelf offer" from BT.

However, Johnson told ZDNet UK that, while some ISPs have been finding profitability through that approach, the arrival of loss-leading offers of free connectivity could prove fatal to smaller competitors in the domestic market.

Couple that with the resources of the international incumbents buying ISPs — in the UK, witness Spain’s Telefonica and Be Broadband, or France Telecom and Wanadoo/Orange — and it’s not difficult to see where the pressure for smaller players is coming from.

"What we’re tending to see is the big independent ISPs in a market being purchased by an overseas incumbent," explained Jupiter Research’s Ian Fogg, "and this is accelerating consolidation in the market. It’s relatively small change to buy an ISP if you’re an incumbent."

Fogg also suggested that local loop unbundling (LLU) — the process by which BT allows competitors to install their own equipment in its exchanges rather than forcing them to resell its own services — is not having the desired effect of giving customers a greater choice of providers.

"LLU requires capital investment," Fogg said on Friday, "and an inadvertent effect is hastening consolidation in the ISP business in the UK."

However, Fogg also pointed out that LLU was "giving customers greater choice on speed and quality", as smaller providers concentrate on niche markets such as small businesses.

The smaller providers may offer higher speeds or better customer services than the big players, but "maybe at a slightly higher price point" Fogg said. Comparing the current landscape to that of the late 1990s, Fogg highlighted Plusnet as the only smaller ISP that retains mass-market ambitions.

"Going forward in terms of choice," said Fogg, "the big thing to watch for is wholesale DSL from some of the LLU players, because smaller ISPs don’t have scale to justify LLU themselves. However, they would like to have a greater choice of the suppliers they use — they would like to be able to pick and choose."

A spokesperson for Ofcom told ZDNet UK that customers were benefiting from "strong signs of competition" in the broadband retail market, but added that it was "too early to say whether LLU is going to mean more providers".

"There’s no one provider with 80 percent of the market, and that’s the point," he said.