Adapting to the challenges of change

Anybody who has been working in the ISP sector for a few years will, like me, be amazed at the continuing state of change in the market and the continuing evolution of what one understands by the term “ISP”.

Just a few short years ago, only people who lived in larger cities could hope for a 28,800bps connection at local call rates – and only then in return for not just the expense of a high telephone bill but also a monthly subscription fee. Now, local call rates from “free” ISPs offering 56,600bps are considered slow and the option to be chosen if nothing else is available. This state of continuous change in the ISP market has required a dynamism far beyond the needs of most other industry sectors. We find ourselves on the cusp of another change now – as broadband access becomes increasingly common, opening up a great deal of new opportunities, new forms of content, new potential for alliances and synergy with other industry sectors and new ways of keeping ISPs at the hub of the information age.

Nonetheless, doom and gloom continue to dominate the news about the progress, or lack of, broadband Internet penetration. The failure of regulators right across the European Union to unbundle the local loop has slowed down the momentum of liberalisation and this has had a negative impact on the ability of forward-thinking companies to push on with their plans and new business models. From the household consumer point of view, many are more or less satisfied for the time being with their Internet access agreements, especially those on flat-rate deals, where limited competition between several big names has forced prices down to what many customers view as an acceptable level.

This will change, but just how quickly depends on your optimism. The key of course, is the development of those services which appeal to end-users and which require data transfers to take place at speeds beyond those possible through dial-up access. This, together with the lowering of broadband access fees to a level which consumers regard as good value for the services on offer, will convince consumers to splash out for services such as video streaming, an improved ability to download music and the possibility of replicating the office in the home.

Currently the industry is caught between a rock and a hard place. Broadband prices will come down only when greater numbers of consumers subscribe to those services, but what is putting consumers off for the moment is, primarily, the high price for access. Nonetheless, the shift will happen eventually – and has already started.

For ISPs themselves, the employment of FRIACO (Flat-Rate Internet Access Call Origination) in the UK has at least given them something on which to base business models. Establishing customer bases and managing consistent revenue streams will allow ISPs to make the transition to offering broadband access much more easily. Even FRIACO isn’t without its problems though – in France, for example, where universal service obligations are paid for on a per-minute basis – meaning that while the consumer is paying a flat rate for accessing the Internet, the ISPs are still paying per minute to provide the service.

EuroISPA and its members undoubtedly have a huge interest in seeing a successful and prompt rollout of broadband services. We agree with those analysts who believe we are looking for a ‘killer use’ of the technology, rather than the ongoing, media-hyped search for a single, ‘killer application’. EuroISPA will analyse this issue in detail during its 2002 Conference, “Enhancing ISP Business Models”.

However, our members have asked us to look into how they can ‘enhance’ their business models with new opportunities. Their experience of the last year or two has already forced them to reinvent and redevelop their business models repeatedly, with one eye on their current balance sheet and one on future technological developments. Therefore, we will look at how to maximise their current prospects and how to incorporate realistic investments without leaving themselves in the same, precarious situation as many ISPs found themselves until very recently. It is important to pool information in order to maximise opportunities to help the ISP industry grow AND become increasingly competitive.

For example, on the broadband technologies front we need to ask whether CDNs (Content Distribution Networks) do provide for a secure future in the broadband market and whether content-centric or access-centric systems represent the best proposition. The market is already well supplied with various technologies promising to be the “next big thing” in the Internet access market.

We also need to look at some of those ‘killer uses’ already identified for broadband. Wireline, wireless and satellite opportunities all need to be looked at for their current value and potential for development. There is no value in dwelling on “pie in the sky” ideals of what could be achieved if only the investment were there, or which could only be provided at costs that consumers would be unable to stomach.

One of the key areas of development for ISPs is bridging the gap between traditional offline content producers and distributors and online consumers. Traditional content distributors, in particular music companies, have found transition to the online market especially long and difficult and these difficulties have been widely and easily exploited by initiatives such as Napster. The experience of ISPs in developing and using online business models, together with the sought-after products of music producers is the kind of synergy that can benefit all actors in the online market. Possibilities for partnerships will grow through increased accessibility of audio content, watermarking technologies allowing ISPs and music industry partners to better control content travelling across their networks and as ISPs increasingly find themselves in a position to provide “value added” content services from across the range of media services. The first examples of “free” or low cost ISP subscriptions with optional subscription-based services are already beginning to find their way into the marketplace.

The direct marketing industry is another example of a traditional industry which is very strong in the offline world but which has had difficulties in coming to terms with life in the online world – and these too have been all too readily exploited by disreputable “spammers”. In an interesting parallel, these traditionally strong businesses have had their online difficulties rapidly exploited by unscrupulous traders. “Spammers” have continually damaged online direct marketing, potentially fatally with regard to unsolicited e-mail. With traditional direct marketing methods effectively blocked off from businesses online, ISPs are in a perfect position to bridge the gap between traditional direct marketers and their online “target audience”. Companies such as Yahoo! offer free mailing list hosting and management, for example, in return for advertising embedded in e-mails from lists using their service. Not alone does this offer direct marketers a new method of contacting consumers, but a method which is much more targeted and much more likely to be seen repeatedly by consumers who are not likely to view this as an infringement of their personal privacy.

The permanent state of flux of the ISP market is made even more complicated by the increasing pace of convergence in the telecoms market. “Convergence” is the term used to cover the variety of ways in which traditionally different communications technologies are increasingly overlapping or “converging” on each other. For example, there has been an increase in the use of IP (Internet Protocol) technologies in telephony services that have traditionally been served by switched circuit technologies. At the same time, the ubiquity and speed of IP services are increasing at an incredible pace. Perhaps inevitably, with two parallel communications technologies that are so widespread in the developed world, there is a gradual move towards convergence.

Convergence between IP and PSTN (Public Switched Telephone Network) technologies does not just offer opportunities with regard to the methods of transportation of data but also interaction between different communications platforms. Perhaps the most well known convergence technology is ENUM. This, in simple terms, allows users to be contacted via a number of media, through the same “telephone number”. This would mean that the same number could be used to contact someone on their mobile phone, fixed phone or e-mail. This is done by mapping the traditional “E164 standard” telephone number onto an Internet based ENUM “domain name”. A consumer would call a number as usual, some online trickery would transfer the number onto a unique domain-name type address and the communication would be relayed to the platform chosen by the addressee of the communication. It is worth noting that the European Union has just finalised a complete overhaul of EU telecommunications legislation in order both to simplify it and to “future-proof” it by making legislation “technology neutral. This timely revision of existing legislation means that, as such technologies come on the market, current legislation is drafted in a way to automatically deal with it.

ENUM is far from being the only convergence technology, of course. In Australia, a group of companies known as Nascomms has been set up which is trying to provide a similar, although somewhat less sophisticated, service. The Nascomms service allows users to have their telephone number serve effectively the same function as their Internet domain name. Nascomms and ENUM show that convergence of naming and addressing systems has begun in earnest. But naming and addressing is not the only area where convergence has taken off.
ISPs are starting to realise that alliances with telcos could ultimately increase their customer bases. One large ISP recently signed an agreement with one of the largest US telecommunications companies – the alliance providing a branded long-distance telephony service. The ISP benefits from the deal for branding and advertising the service, while the telco gains increased brand awareness and eventually, consumers sufficiently aware of the brand to move towards a purely IP based platform for origination of their long-distance calls. The same ISP has also identified the need to branch away from its traditional means of communication with its customers and move towards access to its own online content using other platforms. As a result, the ISP has made a deal with a manufacturer of set-top boxes to ensure compatibility with its services.

As a result, it is up to ISPs to seize this opportunity to make the most of the opportunities convergence opens up for them. A variety of online companies are already selling VoIP services, although the quality remains far from perfect. However, with ISPs as the first point of contact between end-users and the Internet, increased Internet usage, ever-faster Internet services and convergence between both PSTN and IP telephony services and the convergence of communications platforms offered by innovations such as ENUM, the future is certainly bright for ISPs prepared to take the plunge and move towards new, innovative communications technologies.

There is no doubt, therefore, that the bewildering speed of change which ISPs have endured over the past seven or eight years does not show signs of slowing down. ISPs in Europe need to come to terms with the new regulatory package and globally need to address both the new opportunities for alliances with content providers and development of services which the growth of broadband technologies are going to increasingly make possible. In parallel to this, ISPs need to come to terms with the impact of convergence, exemplified by ENUM, for example, and compatibility of services across the range of newly Internet enabled devices – from 3G mobile phones to games consoles.

Of course, these changes offer at least as many opportunities as threats and one can’t help thinking that the famed (reputedly) Chinese curse is more of a blessing when it comes to the roller-coaster Internet market:

“May you live in interesting times and come to the attention of interesting people”

The EuroISPA Conference on “Enhancing ISP

Business Models” takes place on April 10 and 11, 2002
in Brussels. For more information see www.euroispaconference.org.

Top of Page

AUTHOR BIOGRAPHY

Joe McNamee,
Regulatory Affairs Manager