In that case, I have to ask how long their clients will continue to tolerate the undoubtedly higher charges they are paying each month.
Companies of this size will primarily be relying on 3rd party infrastructure and service access, and in those conditions, it is basically impossible to sell connections at competitive market rates while having them contribute towards a positive bottom line result.
Customers, in both the residential and business markets, are becoming more aware of what to expect in terms of price and speed from their providers, in large part this is due to the wholesale buy prices for products now often being in the public domain.
Some of the ISP’s listed are niche players (who I hear very good things about – looking at you WIC), I get that, and they will continue to fill a solid wireless/rural/regional space.
But those in metro areas and devoid of a pretty dynamic growth plan are not long for this world.
I am going to attempt some maths here…
If Spark’s revenue from broadband is approximately $280m p/year, and they hold approximately 40% of the market, then the total market value is roughly, very roughly, $700m - 3.4% of $700m is $23.8m, that split between the 40 or so smallest ISP’s in the country equates to annual revenue of approximately $600K per ISP in that bracket from broadband products.
If small ISP’s are keeping prices low by operating as single operators or a two person team, then support suffers.
Faster circuits need more backhaul, more IP transit and bigger/faster routers/switches. Every client wants faster speeds, I know that at DTS it feels as though 200Mbps UFB fibre is now our default entry level service.
In short, the cost of providing a connection is going up, or put another way, the net return per client is going down.
Keeping in mind that the figures above are very rough, they do illustrate the difficulty the majority of small ISP’s in NZ face in staying viable as their already tenuous bottom lines are put under increasing pressure.
By Brendan Ritchie - CEO, DTS
Follow Brendan Ritchie on Twitter at @bcarmody