IP Revenue Forecasts Rosy

As Cahners In-Stat Group forecasts rising revenues for service providers, IDC forecasts growing consolidation.

ISP-Planet Staff
[April 20, 2000]

Internet protocol (IP) services revenue will surge to approximately $70 billion in the US by 2004, becoming one of the top revenue sources for service providers over the next five years, according to research by Cahners In-Stat Group.

IP applications include e-commerce, videoconferencing, distance learning, Webcasting, multiplayer games, call centers, unified messaging, and interactive voice response using IP-based broadband networks.

According to the research, several trends will both benefit and challenge the future deployment and evolution of IP services. IP will allow for the following advancements, according to the report:

• An increase in the speed of application development, creating new opportunities for carriers
• An open environment that facilitates the deployment of services
• A mass customization model that enables service providers to quickly deploy services to the mass market that can then be individualized by each user
• The utilization of Voice over IP and Virtual Private Networks to deliver newly developed applications — driving customer loyalty and increased revenues

The nature of IP completely changes the dynamics of service provisioning and offers a tremendous opportunity for those service providers willing to start the long process of transitioning their legacy networks to next generation service platforms, In-Stat found. Those who can successfully integrate the strengths of both existing circuit switched technology and the emerging packet technology will be well positioned to take advantage of this next generation of communication services.

ISP Market Still Dominated By the Big Guys
According to IDC, America Online and UUNet still have a commanding lead over the competitors in their ISP market segments (consumer and business access, respectively).

"The most striking development in the ISP market has to be the continuing dominance of UUNet and AOL in their respective market segments," said Steven Harris, an analyst with IDC's Business Network Services research program. "America Online is by far the largest consumer-oriented ISP, and UUNet dominates the market for business access, wholesale services, and value-added services by large margins over the number-two carrier in each segment."

The consumer segment will maintain the largest share of the market's revenues until 2002, when the value-added services segment in the business access and wholesale segments will start to grow faster, according to IDC.

"Value-added services will grow faster than the other segments as Web-hosting revenues skyrocket, free Internet service providers grow their subscriber bases, and corporations and consumers utilize services other than just access from ISPs," Harris said. "Growth in the consumers segment will moderate due to market saturation. However, the number of daily users in this segment will go up as will the length of time they remain online."

In the business market, the number of online users is increasing and Internet budgets are substantially increasing. However, IDC found traditional ISPs are benefiting less and less from this trend as interexchange carriers have replaced them as the largest providers of Internet access services to businesses. In the wholesale market, an increasing number of affinity groups will become virtual Internet service providers (VISPs), and the increase in VISPs will positively impact demand for wholesale services.

IDC's report "Internet Service Provider Market Review and Forecast, 1999-2004" forecasts US Internet service provider revenue through 2004 divided by segment.

Related Articles
Internet Call Waiting: Rewards Without Risks

VoIP News Briefs - March 2000

Added Services Key to DSL Success

Can NetZero Survive?

Free ISP Market Heats Up in France

And see ASP Island.

—End