US ISP Revenue Continues Its Climb

After a spectacular 67 percent increase in 1999, revenues in the US Internet services market will increase another 29 percent in 2000 and flirt with the $23-billion mark in 2000, according to International Data Corp. (IDC).

According to IDC, America Online and UUNet will lead the market’s drive, as these two ISPs have a commanding lead over the competitors in their market segments (consumer and business access, respectively).

“The most striking development in the ISP market has to be the continuing dominance of UUNet and AOL in their respective market segments,” said Steven Harris, and analyst with IDC’s Business Network Services research program. “America Online is by far the largest consumer-oriented ISP, and UUNet dominates the market for business access, wholesale services, and value-added services by large margins over the number-two carrier in each segment.”

Accounting for 40 percent of consumer access subscribers, America Online’s share is more than the next 20 largest ISPs’ combined share. UUNet controls 26 percent of revenues in the business segment, 43 percent in the wholesale segment, and 17 percent in the value-added services market — at least almost double the share of the nearest competitor in each market.

According to IDC, consolidation is expected in the consumer segment of the ISP market, with service providers merging or taking over the consumer subscriber bases of other carriers. As a result, AOL will face larger rivals, but none will seriously threaten its dominance. An increasing number of ISPs will enter the other markets, and UUNet will get a run for its money, especially in the business access and wholesale segments.

The consumer segment will maintain the largest share of the market’s revenues until 2002, when the value-added services segment in the business access and wholesale segments, according to IDC.

“Value-added services will grow faster than the other segments as Web-hosting revenues skyrocket, free Internet service providers grow their subscriber bases, and corporations and consumers utilize services other than just access from ISPs,” Harris said. “Growth in the consumers segment will moderate due to market saturation. However, the number of daily users in this segment will go up as will the length of time they remain online.”

In the business market, the number of online users is increasing and Internet budgets are substantially increasing. However, IDC found traditional ISPs are benefiting less and less from this trend as interexchange carriers have replaced them as the largest providers of Internet access services to businesses. In the wholesale market, an increasing number of affinity groups will become virtual Internet service providers (VISPs), and the increase in VISPs will positively impact demand for wholesale services.

IDC’s report “Internet Service Provider Market Review and Forecast, 1999-2004” forecasts US Internet service provider revenue through 2004 divided by segment.

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