Internet Service Provider’s are facing “increasing difficulty” in their quest to return a profit for their shareholders, according to industry expert Brendan Ritchie, CEO, DTS.
Looking at the market from a high level, Ritchie believes “it is easy to see” how Spark lost $12 million on broadband services last year, and how Orcon was not profitable at the time of its sale.
In September, Vodafone New Zealand also reported an annual loss of $28 million for the year to March 31, which was its first loss for 14 years.
As a result, Ritchie believes there are some of the key factors at play:
Aggressive pricing has been a fact of life for a while now, and there is little room for niche ISP’s to claim a justifiable premium for their services.
Follows on from the point above, but just nails home the point that standard Internet access is a utility and pricing is or should be easily compared from one ISP to the next.
New Zealand has 33 UFB regions:
If you want to win business you need to either be in the vast majority of those regions, or have plans to be soon. This means more equipment in more places and backhaul from all those places to Auckland for international transit access.
Circuit speeds continue to increase:
As a result, CPE (customer routers, firewalls and switches) need to be replaced as sites are upgraded, core routing/switching needs to be 10Gbps capable and both domestic and international transit volumes have to be high enough to allow end users to reach their top end circuit speed.
National/international transit costs continue to fall
New players in the transit market and the increased number of peering exchanges (and entities advertising ranges across them) allows for more cost effective routing policies.