ISPs face tough broadband choice

"The number of ISPs is always growing, but there's still a lot of consolidation happening," International Data Corp (IDC) analyst Landry Fevre told ZDNet Australia  of a market which last week saw Internet providers Chariot and Datafast finalise plans to merge into Australia's fifth-largest ISP. Fevre is IDC's research director for telecommunications and consumer markets.

That consolidation, he said, was due to the fact many ISPs which had traditionally survived on the high profit margins available in selling dial-up were unwilling to accommodate the lower margins offered by reselling Telstra's wholesale broadband offerings. The alternative path -- for an ISP to construct its own broadband infrastructure -- was only open to the nation's top ISPs like iiNet and iPrimus, because of the cost involved.

"But the market is going to broadband anyway. So if you don't do anything, you're losing your customer base that you've built for the last 10 years on dial-up," he said.

The merger between Chariot and Datafast is the ultimate consolidation for the two companies, who say they have collectively acquired more than 20 other ISPs in the past two years.

At least some of those acquired came from the Western Australia-based VianetAIP group of ISPs, which Datafast bought from Comdek only several weeks ago. At the time, Datafast chief executive Ehrenfeld said the acquisition had "put legs on" Datafast's corporate division, established in 2004.

Datafast and Chariot claim the merged entity will be the nation's fifth-largest ISP, with 275,000 accounts, although only 28,000 of those are broadband-based. Current Datafast chief executive Simon Ehrenfeld and Chariot managing director Robert Horlin-Smith are to run the business as joint-chief executive officers.

Another example of consolidation is wireless player Access Providers' recent acquisition of Melbourne-based ISP Online 2000.

No end in sight
Fevre said the market was unlikely to stabilise soon, due to the sheer numbers of consumers moving to broadband.

"This year the Australian market will take up 1 million broadband subscribers," he said. "So the market is moving very fast."

The analyst said the high-speed ADSL2 services which were currently emerging were likely to provoke Telstra to remove the 1.5mb speed limit from its wholesale ADSL services.

Although the ADSL specification allows up to 8Mbit/s, Telstra has cited technical limitations related to the distance of customers from a telephone exchange as the reason for choking speeds back to 1.5Mbit/s.

Fevre pointed out Telstra's wholesale offering was not competitive on speed or price compared with offerings from infrastructure owners like iiNet and iPrimus, and said the giant had no choice but to remove the limit.

Wireless players also had the potential to shake up the market, he said, especially mobile phone players like Vodafone and Hutchison who could convert 3G mobile networks into wireless broadband. Vodafone is already offering such a service in Germany.

Fevre's comments come as The Australian  newspaper this morning revealed Vodafone was planning to evaluate just such a 3G broadband service in the second half of this year.