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Superhighway at the crossroads
The evolution of internet service provision
By: Quocirca
Published: October 2008
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The internet has grown rapidly from a random collection of mainly academic networks and military control and routing protocols into a global, integrated and sophisticated commercial utility. No longer simply an ‘Information Superhighway', it has extended to embrace voice telephony, video and mobile communications as part of a converged network. Connection options and services have expanded, with opportunities for internet service providers (ISPs) to add value beyond simply forwarding bit and bytes. This report explores the challenges and opportunities these companies face and takes a look at how their industry might evolve.

  • 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.

CONCLUSION: The rapid development of the internet created opportunities for new ideas and business models, but is testing these severely as the market matures, impacting both established industry giants as well as start-ups. Demand for internet connection has soared, but customers have many different needs and expectations. The industry faces challenging times if it is to continue to offer the diversity of services required by the long tail of both residential and business consumers.

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