ISPs not immune to tech gloom

ISPs will have to have very solid business plans to ride the storm
Written by Jane Wakefield, Contributor on

A shake-out in the ISP market will be inevitable in the current climate of tech gloom, according to analysts.

Just as mobile firms, chip makers and other high-tech companies are all feeling the pinch, so ISPs will not be exempt from the hard times the tech sector is experiencing. And only the strong will survive.

Even during the height of investor confidence and dot-com supremacy last summer, ISPs were having a hard time in the rush to adopt unmetered access models that were not yet fit for purpose. Many collapsed as they rolled out free or nearly free services in the rush to gain eyeballs, but found the telecoms costs they were shelling out to BT meant the model was not sustainable for more than a couple of months.

Since then the ISP market has adopted a little more gravitas with Oftel forcing BT to roll out a viable and usable wholesale unmetered model -- dubbed Friaco. Freeserve, World Online and AOL are all now offering Friaco-based services.

Without solid business models there is little chance of survival in today's tough tech climate, according to Durlacher analyst Nick Gibson. "ISPs will have to make sure business models are sustainable because raising more money is not going to be an option for the vast majority of them," he said.

There is a huge range of models being used by ISPs in today's market, says Gibson, and while Friaco has proved viable for the big ISPs it may not be so for smaller players.

"AOL breaks even on the telecoms costs but that is because of the vast volume of traffic it has," Gibson pointed out. AOL is also making money from e-commerce -- last year it made £4.5m in the US and while this isn't exactly reflected in the UK market it is still a valuable string to its bow. Because of this it is in a far better position than rivals like Freeserve, says Gibson.

To add a glimmer of light to the online future Durlacher predicts that, despite the downturn, 2001 will be a record year for Internet access so for ISPs with decent business plans and revenue beyond telecoms, the Internet service market will still be a pretty good place to be.

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