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Australia's ISP Consolidation Continues

It's official: the number of small ISPs in Australia continues to shrink as the independents' complaints about ILEC misdeeds are ignored by the regulator, the Australian Competition and Consumer Commission (ACCC).

by Craig Liddell of australia.internet.com [January 10, 2002]

The latest figures from the Australian Bureau of Statistics (ABS) indicate the number of subscribers continues to increase while the number of ISPs remains in decline.

The Australian Bureau of Statistics (ABS) Internet Activity Summary notes ISP numbers dropped 4 percent to 603 during the September quarter following a fall of 6 percent between March 2001and June 2001. Points of Presence (POPs) were down by 3 percent although access lines were comparable to the June quarter.

However, the number of subscribers increased by 2.2 percent (92,000).

The manager of a regional ISP agrees the situation has changed little in the past three months, noting a number of corporate failures like Asia Online and Exodus. He believes more consolidation will occur "but as customers come to expect more service, only the smaller providers will be able to offer such a service and the squeeze will be on the medium sized ISPs," those companies with between one hundred and two hundred thousand customers offering "cheap access prices.

Breaking down of the ABS statistics reveals there were 603 ISPs in Australia supplying Internet access services to 4.3 million active subscribers at the end of September quarter 2001. These include 6 very large ISPs, with more than 100,000 subscribers (64 percent market share), 30 large ISPs, 10,001 to 100 ,000 subscribers (22 percent), 150 medium ISPs, 1,001 to 10,000 subscribers (10 percent), 303 small ISPs, 101 to 1,000 subscribers (3 percent) and 114 very small ISPs, less than 100 subscribers (0.1 percent).

There was a decrease of 25 ISPs overall from the June quarter 2001. The majority of these were in the small size range with a decrease of 18. There was an increase of one very large ISP during the quarter due to the subscriber base for one of the large units surpassing the 100,000 subscriber cut-off for the category.

The regional ISP manager continues to believe the retail and wholesale pricing of large telcos is driving consolidation. However, "smaller ISPs who can get telco connectivity from someone other than Telstra can survive with lower overheads."

He agrees ISPs are being forced to differentiate themselves by offering additional services such as webhosting and e-commerce rather than pure Internet access. "Diversification into those areas was happening from day one for many ISPs," he says, "although a lot of the dot.coms that went into that area didn't survive as they never achieved sufficient cash flow to cover their overheads."

Daniel Growden, manager of regional ISP, TimeGate Systems believes once "the majority of the market is dominated by a few large companies, we will see prices rise to a realistic price level." Like gas, power, and water, Growden predicts a set service fee will be introduced on a per megabyte basis and will form the majority of account types provided.

TimeGate currently breaks even with dialup accounts, forcing Growden to explore "other services as well as additional services for dialup customers." These include service contracts for businesses, web hosting, remote data backup and an Internet caf?, as a few examples.

"Especially being regional, we most certainly cannot compete with a $24.95 per month accounts being provided by other larger players."

A yearly analysis reveals a consistent decline in most ISP categories with 115 companies closing their doors between September, 2000 and September, 2001. Only the number of large and very large IPSs remained constant as small ISPs were reduced from 377 to 303 and very small ISPs down from 132 to 114.

The regional ISP manager considers the withdrawal of call forward services and the delay in new call zones for a local call, offered to Telstra's preselected customers, as a key issue in the upcoming year. "So much for competition and the level playing field," he quips, "changing thousands of telephone numbers for customers to dial a 019 number offered only by Telstra."

Another major challenge, he continues, is "the ongoing squeeze by selling services below cost by the telcos." As one example, Telstra's ADSL traffic component is sold at a "wholesale rate for about $450 to ISPs but the line/traffic is sold by Telstra for about $80-$90. With the lower ADSL tariffs, they can squeeze harder, further hurting smaller ISP and non-telco competitors."

However, he notes the recent spectrum sharing agreement announced by Telstra will encourage regional IPSs to roll out DSL services, "because they offer 'service' [so] it should be popular if the pricing is right."

The cost of the traffic component, he adds, is the "killer." Telstra's ADSL service includes 3 gigabytes of traffic which the telco wholesales to ISPs for about $450 ($150 a gigabyte). "That pricing allows us only a negative margin ... a recipe for bankruptcy for anyone offering it." The very best rates going for traffic, the manager continues, at $60 a gigabyte, would mean a traffic component for persons using 3 gigabyte a month is $120 on a service which is being sold for under $70, "we would be very selective with who we could offer such a service to."

"A regional or small ISP will not be able to survive off dialup accounts alone," Growden concludes. "By providing additional services and expanding the scope of their work, they may be able to. However large profits seem to be a dreamy concept, and ISP owners like myself, who are educated as network admins, can earn far better money working for someone else ... like a big telco."

"Until Telstra/Optus stops cross subsiding Internet services," the regional ISP manager continues, "unfair and unconscionable conduct is flourishing under the nose of the Australian Competition and Consumer Commission (ACCC) who refuse to recognise it as such. The ACCC won't even reply in writing on their lack of 'backbone' in dealing with the matter of unfair competition—they claim that if all the telcos are using unfair cross subsidies on Internet services then it is OK—they will only placate you with a phone call if you push it."

— End