Broadband Broadens the Digital Divide

According to a report by Forward Concepts, broadband services are growing, especially at the high end, bundled with premium services directed at small businesses. PSINet likes business services so much that it will spin off its retail ISP later this year and focus on business services.

ISP-Planet Staff
[May 17, 2000]

According to CyberAtlas, a report by Forward Concepts suggests that broadband will soon dominate the business ISP market. Specifically, by 2005, penetration into the 7 million companies with fewer than 20 employees could reach 40 to 50 percent, and into the 1 million companies with 20 to 100 employees could reach 75 percent.

"Internet access will remain an overriding concern, but vendors and service providers must look beyond raw bandwidth and pipelines to view DSL and cable modems as enabling technology for enhanced services," said Andrew Davis, the report's author. "These services — including packet voice, e-commerce, distributed education and training, entertainment, virtual private networks for remote LAN access, PBX extensions, gaming, and videconferencing — will provide the real revenue opportunities and drive customer retention."

The major SOHO broadband services will be Internet access (forecast to grow to $4.6 billion by 2005) and VoIP (forecast to grow to $1.3 billion by 2005).

In the enterprise market, the market for virtual private networks (VPNs) is forecast to grow to $5.1 billion by 2005, and general Internet access to $1.7 billion.

The study also details how the value-added services will play an increasingly important role for all broadband service providers (and their customers) and will begin to blur the distinctions between a network service provider, an ISP, and an ASP.

PSINet Shows How
PSINet has so much confidence in the business market that it has shifted retail ISP assets into a separate unit, called Inter.net Ltd., a global consumer ISP with approximately 550,000 users in 20 plus countries, which will probably be spun off.

PSINet will focus on business applications, hosting, broadband, and other services.

According to PSINet, these services make money. Average annual new contract value for business accounts increased to $7,300 for the first quarter of 2000, from $7,100 for the fourth quarter of 1999 and $6,200 for the first quarter of 1999. Average annual new contract value for managed web hosting accounts in the U.S. was $123,000 for the first quarter of 2000.

Furthermore, there is markedly lower churn with business accounts. PSINet's business account retention rate for the first quarter of 2000 was 75%, compared with 81% for the first quarter of 1999 and a full-year retention rate in 1999 of 79%.

Will PSINet become an ISP-ASP? It is not one yet, but it has made its first ASP investment, claiming, "entry into a definitive agreement to acquire Metamor Worldwide, Inc. (NASDAQ: MMWW), a leading provider of information technology solutions. The combination will also give PSINet a controlling interest in Metamor’s publicly traded e-Business solutions subsidiary, Xpedior Incorporated (NASDAQ: XPDR). Completion of the transaction is subject to a number of conditions, including the receipt of shareholder approval."

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