[IBD stats on ISPs]
Today's IBD, "Amid the Churn and Change, ISP Market Keeps on Growing:"
<<< The number of Internet service providers continues to grow, contrary to what most analysts expected.
In the past 18 months, the number of ISPs has almost tripled to more than 4,000 from 1,500. ISPs all want the same thing: people and businesses to use them to access the Net.
With all the big telecom firms in the market, industry observers had expected consolidation among the smaller players. Why hasn't it happened? Because so many more folks are getting onto the Net, apparently, that there's enough business for everyone.
''Access revenues will be growing rapidly because more people are getting online,'' said Jill Frankle, a senior analyst with IDC/Link in New York. The research firm says the number of online households is expected to rise to 39.9 million in '01 from 12.9 million in '96.
The ISP market, which includes online service providers such as America Online Inc., has grown to $8.4 billion in access revenue for the 12 months ending Sept. 30. That's up from $1.9 billion as of just 18 months ago, says market researcher Maloff Group International Inc. in Dexter, Mich.
By 2000, Maloff says annual access revenue could surpass $50 billion.
''There is no way to know how big the market is going to be,'' said Paul Stapleton, editor of the newsletter ISP Report in Golden, Colo.
The fledgling ISP industry has settled into three tiers: national, regional and local.
The national providers consist of the big online firms and the national telecom companies. Dulles, Va.-based AOL is the largest. And it plans to acquire the consumer subscribers of the second-largest, CompuServe Corp. of Columbus, Ohio. AOL then will have more than 55% of the ISP market, say second-quarter figures from IDC/Link. The two other large national online services - Microsoft Corp.'s MSN and Prodigy Inc. - together have 15%.
That leaves the other ISPs with less than 30% of the market. Among them, New York-based AT&T Corp.'s WorldNet service is the largest, at 5.2%. No other ISP has more than 3% of the market, says the market research firm.
Regional ISPs are growing by acquiring local providers. The number of local ISPs continues to grow, though there is a constant turnover of competitors at the local ISP level.
But the notable ISP consolidation has happened in the top tier. There's been consolidation ''at the backbone level of companies,'' said Abishek Gami, analyst with Chicago investment firm Nesbitt Burns. He refers to companies that actually have the physical wiring and gear that connects users to the Internet. The others lease equipment from, or share them with, these firms.
In September, WorldCom Inc. of Jackson, Miss., announced plans to buy CompuServe. WorldCom plans to trade CompuServe's consumer subscribers for AOL's networking business. ICG Communications Inc. of Vancouver, Colo., said in mid-October that it will buy Netcom On-Line Communication Services Inc. of San Jose, Calif., the fifth-largest ISP after AT&T. And GTE Corp. of Stamford, Conn., in May bought BBN Corp. and renamed the Internet service GTE Internetworking.
Among regional ISPs - firms that concentrate on certain geographic areas -EarthLink Network Inc. of Pasadena, Calif., and Atlanta-based MindSpring Enterprises Inc. are focused on the consumer market. Others such as NetCom and PSINet Inc. of Herndon, Va., are primarily serving business customers.
Changes are happening in the middle tier. MindSpring Enterprises has acquired the rights to the subscribers of 19 smaller ISPs. MindSpring added 4,000 to 6,000 users with each acquisition. It now has 224,000 subscribers.
These smaller ISPs, though, haven't all gone out of business. Many have left the consumer market in favor of serving business users. Local ISPs are adding business services such as Web hosting.
Like MindSpring, EarthLink is pursuing a strategy of paying for subscribers from smaller ISPs that are exiting the consumer market.
The goal for these midsize ISPs is 500,000 subscribers, says Barbara Ells, an analyst with Zona Research Inc. in Redwood City, Calif. With 500,000 members, an ISP's cost of maintaining each subscriber goes down, leaving a higher profit margin, she says.
Analysts say ISPs will grab a bigger share of the access market from the online services. AT&T added about 75,000 users during the last quarter and now has 970,000 subscribers. MCI Communications Corp. in Washington also is growing faster than most, says IDC/Link.
All the regional Bell operating companies' Internet units are growing. Atlanta-based BellSouth Corp. had a 30% growth rate in the third quarter from the prior quarter, says Washington, D.C.-based newsletter Interactive Services Report.
''There is going to be consolidation at the top end and in the middle, and a lot of churn (turnover) at the lower end of the market,'' said Ells of Zona Research.>>> |
