Insights on the challenges for ISPs in today's market
Expert: Matt Davis, Director, Consumer and Business Multiplay Services, IDC
Q. What is the key challenge for Internet Service Providers in today's market?
A. Unquestionably, the need to develop new revenues using the broadband pipe. We track traditional revenue generators and monthly broadband subscription fees, and in the voice arena, access lines are really starting to recede and so are revenues. We're seeing hundreds of thousands if not millions of primary-retail-line losses per quarter and a two percent decrease in access revenue. We're also seeing an increase in wireless displacement; it just isn't true that every local voice subscriber that drops a telco goes to cable.
Often people cut the cord for economic reasons, which doesn't play well for ISPs, given what we're facing in the next year or two. So ISPs need to capitalize on video download, online gaming, or other services made possible by the infrastructure they are now laying in place. It's absolutely essential that ISPs capitalize and monetize that investment.
Q. Will these challenges be the same for all providers, or do you see differences among different tiers?
A. I do see differences. The biggest service providers, with strong wireless divisions and well-diversified wholesale and enterprise businesses, are finding that consumer telecom is not as integral to their business as it once was. Those with facilities-based video capabilities are seeing strong growth. These companies can continue to generate revenues from services such as standard subscription-based voice, video, wireless voice and data, and of course broadband.
Telcos such as Quest and Windstream have significant challenges and must be innovative with new services. Facilities-based providers should experiment with targeted advertising. To me, the position of companies at this level is more urgent. They really do have to lead in innovation.
AT&T will continue to innovate with FMC, together with wireless and wireline services, television, and voice. AT&T is in a better position short term, so other revenue streams aren't as essential. I would say the same is true with Verizon; its investment in FIOS has really helped as far as television growth, although it could do a better job of tying wireless into FIOS.
We expected that the heat of broadband competition would have an impact on cable operators' ARPU and potentially on net adds. Instead, cable operators have had a couple of strong quarters and turned the tide in their favor on broadband deployment.
It is critical for telcos to refocus on broadband, the linchpin to all of these value-added services, and in particular on further investment in upgrades for ADSL2+, VDSL2, and fiber, where it makes sense. In sum, I think we need a renewed emphasis on Capex spending for faster broadband.
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