The overall number of ISPs in Western Europe is still growing, with more than 3,000 doing business at the end of 1998, according to a report by Analysys. The report, “Internet Service Providers in Western Europe” also estimates the Western European ISP market at $10 billion.
The author of the report, Dr. Philip Lakelin, said the market will be unable to sustain such a high number of suppliers.
“Most of the factors encouraging market growth are short or medium term,” Lakelin said. “In the longer term, and that really means only the next few years, the Internet access market will become considerably more streamlined.”
According to Lakelin, the residential sector of the market will remain diverse, but the dominant players will be the branded and content-based ISPs, such as AOL-Bertelsmann Europe, Freeserve, and Planet Online. The report also predicts the main source of revenue will shift entirely away from access provision toward advertising, e-commerce, and content offerings. Prices in the residential market will also continue to spiraling downwards, the report found.
“We expect to see fierce, cut-throat competition among the brand-driven and content-based ISPs in the coming years,” Lakelin said. “Casualties are inevitable among those that do not have flexible business models or the resources to sustain the losses that endure continued rapid growth.”
At the network level, the report found the main beneficiaries will be the operators with large national infrastructures which are able to form stable wholesale and marketing alliances with the branded ISPs to increase overall traffic volumes. Smaller ISPs are likely to be squeezed out, and will either migrate to the business sector or be taken over.
The business sector will be a key area for ISPs that do not possess the skills to compete against the consumer retail organizations. In this sector, the report says the balance of power will shift toward bigger players that own large amounts of infrastructure and can therefore leverage communities of scale as well as deliver a high quality of service. Lower down the supply chain, the report predicts opportunities for diversity will remain for smaller ISPs that are able to take advantage of a local or regional presence to offer customized solutions.
“In both consumer and business markets, the keys to success are the ability to anticipate rapid change and the imagination to constantly reformulate competitive positioning,” Lakelin said.
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