"Reduced profits and fewer ISP’s"... the NZ ISP market in 2015

Internet Service Provider’s are facing “increasing difficulty” in their quest to return a profit for their shareholders, according to industry expert Brendan Ritchie, CEO, DTS.

The market for qualified and skilled staff is hotly contested

Outside of the small owner-operator type ISP's (what Daniel Bohan calls “2 dudes and a pager” providers) where the owners usually hold the technical skills required to keep the operation running, the rest of us rely on a number of highly skilled people to run various parts of the ship (voice, network, systems, software development). Getting and keeping these people on board can be make or break for technology service providers.

Market consolidation is happening in New Zealand and Australia

The Australasian market is literally feeding upon itself. Recent examples include:

• CallPlus bought Orcon

• TPG bought AAPT

• DTS bought ITtelenet

• Vocus bought FX

• Vocus bought Maxnet

• Vocus bought Amcom

• Solarix bought Unleash

• Vodafone bought TelstraClear (NZ)

• Telstra (Aus) bought Pacnet

• 2Degrees are touted as likely to buy SNAP

ISPs are increasingly international operations

There was a time, not too long ago, when DTS was on its own in providing seamless trans-Tasman coverage, but others in the market are now catching up. Forward thinking ISP's and carriers are expanding into multiple regions, such as Australia, Asia and America.

“If we look at why Spark is losing money in the broadband space,” explains Ritchie, “it really comes down to the fact that fast-paced change disadvantages the incumbent.

“Spark were sitting pretty and making a good profit when suddenly a range of significant changes came into force. They reacted by choosing to drop prices to keep their clients, but are still yet to genuinely adjust their business model to reduce operational costs in line with their loss in profitability.

“I am at a bit of a loss as to why Orcon wasn’t making any money given it was an early adapter to changing trends in the market and held a fairly small share of the market, but who knows what goes on behind closed doors sometimes.”

As a result, Ritchie believes 2015 will be a year when those who hold shares in an ISP would be wise to accept dividends will not be forthcoming and instead look to invest with an eye to 2016 and beyond.

“Scale is crucial, both in terms of revenue and in terms of geographical coverage and carrier access,” he adds. “I struggle to see a rosy future for ISP's that limit themselves to a few metro centres, and rely on 3rd party access for other regions.”

Consequently, 2015 will be a year of more mergers, acquisitions, and unfortunately, more ISP's entering into receivership.

“But for those with the scale, vision and let’s face it, deep enough pockets, the future can be bright,” Ritchie adds. “UFB uptake is increasing, IP voice is a mature service, and delivery models are evolving. As with most years in this industry, 2015 will be an interesting one.”

By Brendan Ritchie - CEO, DTS

Follow Brendan Ritchie on Twitter at @bcarmody

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