After slowing dramatically in the first half of the year, one research firm forecasts that the market for DSL access will hit rock bottom at the end of this year. Of course, there's nowhere to go but up. Unless you're in the ISP business.

by ISP-Planet Staff [Oct. 30, 2001]

According to Cahners In-Stat Group, the market for Digital Subscriber Line (DSL) residential services will bottom out late this year and rebound to a position set for considerable growth in the next five years.

The high-tech market research firm reports that slowing in 2001, characterized by the dramatic collapse of key data exchange carriers (DLECs), appears to be stabilizing.

"Even though the residential DSL market slowed significantly after the first quarter of 2000, residential DSL broadband access services are becoming increasingly available in the home as providers are able to extend their services to the edge of the network," says Ernie Bergstrom, a Senior Analyst with In-Stat.

"Price drops will have to take place soon to foster customers as cable and DSL access begin to experience more pricing parity leaving value added offerings, as the only differentiator between the big two residential broadband access services," Bergstrom explained. "DSL price wars have already started in Asia and are certain to reach our shores in the near future, forcing DSL and cable service providers to rethink their marketing strategy."

In-Stat has also found that:

• The Incumbent Local Exchange Carrier (ILEC) companies are holding the dominant position in the market.
• The U.S. DSL residential installed base of broadband subscribers will reach 3.6 million by the end of 2001, and exceed 13.5 million by the end of 2005.
• DSL services in the U.S. will produce in excess of 7 billion dollars of revenue by 2005.
• In the United States, cable modem access will remain the broadband access technology with the most subscribers until late 2004.

The report, U.S. Residential DSL Market Continues to Grow focuses entirely on the residential DSL market place, revealing specific information on service providers and broadband equipment manufacturers while pointing out residential market trends and the forecast for DSL broadband service.

Merge or die
While there are well over 6,000 ISPs offering business access services in the US, the top 10 competitors generated over 65 percent of all access revenues in 2000.

According to Cahners In-Stat Group, continued economic challenges and decreased market capitalization will lead other service providers to either merge or go out of business in the years to come.

Currently a small percentage of ISPs generate the majority of business revenues, and there is little reason to believe this will change in the future. However, this will not result in the total demise of the smaller regional ISPs. Many of these smaller ISPs will survive by continuing to branch out into other services and by working with businesses that are often overlooked by national service providers.

Daryl Schoolar, a Senior Analyst at In-Stat, said new services will continue to emerge and grow, access services will still account for over half of all business service revenues followed by Web hosting, non-hosting value added services, and hardware resell/leasing.

"Access service revenue dominance will continue because ISPs use this service as a platform upon which to build other services," Schoolar said. "However, all ISPs need to beef up access service by offering a SLA (Service Level Agreement). The SLA must not only offer customer retribution for service shortfalls, but also needs to be pro-actively monitored by the ISP."

In-Stat has also found that:

• The largest ISP, in terms of access revenues for 2000, was WorldCom/UUNet.
• The second largest ISP, in terms of revenue, was AT&T. Other ISPs with significant market share were PSINet, Cable & Wireless, Sprint, Genuity, InterNap, XO Communications, Verio, and Qwest.
• The consolidation of the DSL loop market has greatly impacted ISPs. Where previously ISPs could choose between several loop suppliers, today the incumbent Bell is often the only supplier available.
• The slowdown in the economy has hurt the business-oriented ISP customer base and, in turn, threatened the survivability of many of the ISPs.

The report, 2001 Business ISPs—Service, Size, and Share looks at the trends and services that will grow ISP revenues. Also included are five-year forecasts for business-oriented ISP revenues such as access and Web hosting and year-end 2000 market share for business access services.

— End

Online resources:
	AllNetResearch
	CyberAtlas

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