Will Residential ISPs Gain or Lose as Internet Grows?

Residential ISPs' revenues per subscriber fall as Internet use rises.

In its report, Internet Service Providers: Financial Benchmarks and Market Potential, The Strategis Group estimates that residential ISPs' revenues per subscriber fell last year to $17.94. "The decline in average residential service revenues reveals the growing, but still limited, pressure of free ISPs and other low-cost providers on the market," said David Eiswert, Director of Broadband Research for The Strategis Group. "The majority of public ISPs continue to struggle toward profitability and are spending heavily to grow and service their subscriber bases. In the first three quarters of 1999, only one public residential ISP, America Online, and no public business ISPs reported positive operating income."

The report also indicates that despite massive consolidation, the access industry continues to see growth in the number of providers. At the end of 1999, the U.S. was served by more than 7,000 ISPs, driven by a combination of heightened demand and relatively low barriers to entry. This growth in service providers comes amidst more than $1 billion in mergers and acquisitions in the ISP marketplace in 1999.

On the other hand, computer use, and Internet use, continue to grow rapidly.

The latest Harris Interactive data based on telephone surveys of over 2000 adults in December 1999 indicates that:

• The proportion of adults who use a computer at home has surpassed the 50% mark for the first time. This compares with only 30% of users in early 1996.
• The proportion of all adults who use a computer at work has reached 47%, compared to 38% in early 1996.
• A total of 69% of all adults use a computer at home, work or at some other location. This figure is up from 50% in late 1995.
• From a total of 56% of all adults who use the Internet, 46% access the Internet from home, 37% access the Internet at work and 21% access it from some other location.
• Three years ago, just over a quarter (27%) of computer users were using the Internet. Now 81% of computer users go online.

The Strategis Group estimates that U.S. households with Internet access will nearly double to 90 million by the end of 2004. "With free services, broadband access, multimedia content, access appliances, the Internet is a more powerful experience every day," said John Zahurancik, Vice President of Broadband Research for The Strategis Group. "Internet service providers (ISPs) are the gatekeepers to that experience, and will benefit from the investment in content, services and broadband capabilities."

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