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New Report Warns of Difficult Future for ISPs

Posted: 26th Sep, 2008 By: MarkJ
Networking hardware manufacturer, ZyXEL and the leading analyst house Quocirca, have released a new insight report that warns of a difficult future ahead of ISPs and consumers alike.

The key findings predict more consolidation as smaller ISPs are squeezed out of the market and recommends that providers make their broadband restrictions clearer, instead of confusing customers with peak and average bandwidth, latency and usage allowances etc.:

The wave of post dotcom providers is starting to break

The number of UK internet service providers (ISPs) grew from only a couple in 1993 to hundreds as the dotcom boom drove up the appetite for access and the belief that the internet was a one way street to financial success. Times hardened as the dotcom bubble burst, but the increasing availability of broadband and the new opportunities it offered inflated financial interest once again. Now, as economies of scale kick in, the industry is driving down a path of consolidation.

Infrastructure needs to be separated from services

As in many other utilities, the investment and return models for the base layer of infrastructure and the services delivered over it are quite different. ISPs can offer diverse services for specific customer needs, but ideally underpinned by a universal connection infrastructure run for the benefit of the industry, not as a profit centre. This requires a shift in the current regulatory model, but would offer substantial national benefits and encourage a diversity of service providers.

Bundles should be an opportunity to cross sell, rather than simply lock in

Forcing customers down a route that locks them in to several services (e.g. triple play of voice, video and internet) from one provider might undermine loyalty rather than lock it in. A poor experience with one service will taint the view of others and force more churn than anticipated. Services can still be bundled, but if offered on an incremental basis with a discount for accepting more, will help the consumer feel in control, and could be extended to up sell more options.

Control or ownership of core infrastructure remains a significant advantage

The number of ISPs has grown rapidly as demand for access soared when dialup turned to broadband, but control of the final connection, or ‘last mile', is still very important. Forced opening up of this local loop through unbundling in the exchanges by regulation has had some impact, but the industry is still dominated by the whims of the few larger telecommunications network infrastructure companies, in particular BT.

Service providers need to find smarter ways to explain their offerings if they want to upsell

Even the most technically literate customers are confused about issues such as peak and average bandwidth, latency, quality of service measures and usage allowances. Service providers need to sell the benefits in terms that make sense to business and consumers, and align more closely to the applications, content and services accessed rather than simply the attributes of the connection.

New services provide opportunities for differentiation and new revenues

ISPs can offer more than different levels and quality of access, by layering value added services over their infrastructure that consumers and business will appreciate. Anything that removes pain or complexity, such as security, control and account management, should provide the ability to trim costs elsewhere, and rich media services such as IP telephony or video should be seen as an opportunity to generate incremental revenues.

The full report requires free registration to access and can be downloaded here:
http://www.quocirca.com/pages/subscribe/
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