Virtual ISP model not for all: IDC

International Data Corp analyst Landry Fevre said the so-called "ISP in a box" model can work very well, but only in two situations. The first situation occurs when the provider has carved out a niche or two of its own, like a a strong presence in a regional market or with specific groups like universities and sports clubs. The other is when the provider has a strong brand, Fevre said, citing the example of Virgin in the United Kingdom.

"It is really just these two markets. You have to have an existing customer base otherwise it will be very tricky," he said. Although the vISP model is popular in European countries, Fevre said it hasn't yet thrown down some roots in Australia.

A vISP is a company that provides Internet services using the equipment and facilities of a real ISP. A virtual ISP typically offers the services of the real ISP -- such as Web hosting, e-mail, domain name provision, and support -- but under its own company or brand name.

Landry said there is a fine line of difference between a vISP and a regular ISP. While a regular ISP generally operates its own business on top of connections often outsourced to a telecommunications provider such as Telstra Wholesale, a vISP has most, if not all, of its functions and services outsourced. This ISP-in-a-box type of service means that it is basically a hosted solution and the network operator provides the client with a complete kit for setting up a vISP.

He added that vISP mostly appeals to smaller ISPs who have very little background or expertise in the technology.

Australian virtual network operator ispOne told ZDNet Australia they offer smaller ISPs "cheap bandwidth" along with back-end systems customised to the ISP's needs in order to compete with bigger players.

"Our objective is to support the needs of existing ISPs and also new emerging ISPs by tailoring vISP services and offering cost effective Internet access products. ispOne provides billing, provisioning, CRM and payment services where ispOne's customers own, bill and support their end customers," ispOne said.

Telstra Wholesale provides ispOne with its nationwide Internet access to deliver vISP services, including dial-up and ADSL connectivity, to its clients.

ispOne managing director, Zac Swindells, told ZDNet Australia  that the company was not likely to set up their own infrastructure anytime soon.

After trials earlier this year, Telstra announced on Monday the release of its new vISP in-a-box solution in combination with ispOne's OneSolution product. The vISP in-a-box combines with ispOne's proprietary online vISP management system called Aspire, which enables ispOne to deliver a total solution to ISPs, enabling them to run vISP operation.

"vISP in-a-box enables an organisation to provide the functionality of an ISP in the form of hosted dial-up and broadband services without expending capital on new infrastructure. It also appeals to existing ISPs that wish to move away from the continual upgrade cycle necessary to provide a competitive ISP service," Telstra said.

However, Fevre believes that since ispOne is buying wholesale from Telstra, the process becomes a chain and ISPs are better off just buying directly from Telstra.

He added that although the vISP model "could be a solution" for ISPs migrating from dial-up to broadband services, not having its own infrastructure will work against the vISP operator.

"If these guys don't have their own infrastructure, they don't have the scale to play with the big guys because they're buying from Telstra. Having their own infrastructure will make a huge difference for ispOne but it takes a while to do that, meanwhile you have a lot of other players doing that already. They are a bit late in the market for me. To be able to differentiate themselves they should have their own infrastructure," Fevre said.

Swindells said smaller ISPs who wants to move into a broadband-based market should start looking at cutting their expenses which can be achieved through the vISP model.

"It's very hard for smaller ISPs at the moment. They should look at internal business practices first. Then look at what their customers want especially since it is a customer focused market now. It all goes back to good management system and easy to use model from an ISP perspective. ispOne has no retail focus therefore we only focus on our ISP clients," Swindells said.

Fevre, on the other hand, believes that ISPs wanting to move from dial-up to the broadband market will be facing severe difficulties since they will almost be planning a whole new business.

A previous study predicts the death of dial-up in three years, which will force ISPs to turn their backs from dial-up services and compete in the broadband market.