AGL's decision last week to close its ISP subsidiary dingo blue has left some in the industry debating whether small and medium-sized ISPs can stomach the demands of the Australian market.
dingo blue's closure will see its 68,000 Internet subscribers looking for a new service provider, yet according to some of its rival ISPs, the market will be as competitive as ever, with customers continuing to be provided with low access prices and good service.
"Customers are not any worse off. There's still an enormous amount of competitors in the Australian ISP market," said iHug sales and marketing manager, Ben Foote.dingo blue's demise follows a string of ISP closures over the past 18 months. Highlighted by the dramatic collapse of first-tier telco One.Tel in May last year, and proceeded by small- and medium-sized companies such as Asia Online, Australia's list of ISPs has shrunk from some 800 ISPs in the beginning of 2000 to just over 600 in September 2001, according to ABS figures.
While OzEmail CEO Internet Justin Milne believes dingo blue was hindered by its small growth and escalating operating costs, he said the company is just one more ISP affected by the consolidation of the industry, which will see other smaller- and medium-sized ISPs exiting the business. This inevitable consolidation of players in the Australian ISP market has been expected for a long time.
"In the long-term, say 10 to 15 years, I think you will find the ISP market in the world will be consolidated, with some telco and specialist players remaining. ISPs will reduce to around a dozen," he said.
Milne said even though the number of players will reduce, consumers can still expect to receive an improved service. He points outs that every industry goes through this streamlining, without a detrimental effect on pricing or quality of service. For example, the car industry - cars got better and improved in the progress, he said.
"Providing the industry doesn't turn into a monopoly, there should remain some vigorous competition," he said.
But despite the reduction of ISP players, both Milne and Foote believe smaller ISPs can survive the storm, providing they continue to focus on high-quality service.
Foote said there is still plenty of hope for smaller- and medium-sized service providers to play a role in the Australian marketplace, particularly in the areas of customer service and product differentiation.
"Smaller ISPs still have the chance of being around in the future. The economies of scale aren't tremendous. Smaller ISPs can still challenge the $24 to $29 unlimited Internet market," he said.
Another way for smaller ISPs to succeed is by diversifying their business and service offerings. As the wholesale market becomes more competitive and there are more specialist products to offer, smaller ISPs can diversify their product range and thus make enough money to stay in for the long haul, Foote said.
Although certain about the inevitability of ISPs falling by the wayside, Milne said it doesn't necessarily follow that smaller ISPs will fail, but "we will see merging of smaller and medium service providers with the larger ones".
Milne said smaller ISPs may find the "stratospheric growth" that they had gambled on has now slowed. While the business is a respectable one, he believes it is a high-volume, low-margin business, which does not always return big profits.
"Growth in the ISP business continued quite well, but wasn't the hundreds of per cent that businesses had come to expect. Many (ISPs) are finding themselves caught between a rock and a hard place; the business might be marginally profitable, but hard to turn into something hugely profitable," he said.