ISPs Increase Their Spending

A study by Cahners In-Stat Group found that 66 million US consumers are demanding Internet access, indicating major growth is ahead for small “Mom and Pop” ISPs.

As a result of this growth, In-Stat says ISPs are increasing their spending on network build-outs to keep up with the demand from both consumer and business accounts.

According to In-Stat, the single biggest drain on ISP operating budgets is access fees, with local phone lines being the most costly part of access. For every dollar an ISP spends on long-distance lines, it spends $3.50 on local service. Spending on networking hardware is up among ISPs, while personnel expenditures are down, from 25 percent in 1997 to 18 percent in 1998.

In-Stat also reported that less effort and fewer resources are needed to launch an ISP because the technology is easier and less expensive, and the IT workforce has become more familiar with it.

Despite predictions of consolidation in the ISP industry, In-Stat found the number of independent ISPs in North America is also up. Small ISPs, according to In-Stats’s report “The US ISP Industry: What is it Earning What is it Spending?” are reaping the major benefits of increased demand because there are more of them and they are increasing their customer base.

“The business of Internet access exploded in 1998,” said Rick Miller, senior analyst at In-Stat. “Many experts predicted a frenzy of consolidation, and while there has been some well-publicized mergers and acquisitions in the past year, new entrants are popping up and putting out shingles faster than incumbents are merging or failing. They’ve enjoyed enough demand to remain in business, but they aren’t so profitable that the 800-pound e-gorillas need to acquire or squash them, yet.”

According to In-Stat, the average ISP predicts it will have nearly 1,500 business accounts in 1999. This is also good news for the Mom and Pop ISPs, who can differentiate themselves from larger ISPs through hands-on customer service. If ISPs meet their goal, nearly 7 million businesses will be connected to the Internet in 1999.

“Growth in the US ISP industry will continue to explode through 1999,” Miller said. “We are not predicting a continued increase in the number of ISPs, but savvy customers — both consumers and businesses — will place a greater emphasis on flawless service and will not hesitate to jump service providers if they feel slighted.”