Tough Times for ISPs

ISPs and telecom providers face a rocky road. Consolidation could be in the cards.

Times are shaky for ISPs, as many of them--especially those specializing in business access services--face consolidation. A new report from analysts at Cahners In-Stat Group predicts that economic challenges will lead many providers to merge or go out of business altogether.

The report, titled "2001 Business ISPs--Service, Size, and Share," found that the top 10 business ISPs generated more than 65 percent of all access revenues in 2000. Thats especially significant because there are over 6,000 business ISPs in the U.S. But the report also predicted that some smaller ISPs and some regional ISPs will survive by specializing in services that get overlooked by larger players. According to recent revenue numbers, the largest business ISP is still WorldCom/UUNet, and the second-biggest is AT&T. Cable & Wireless, PSINet, and Sprint are also big players.

"While new services will continue to emerge and grow, access services will still account for over half of all business-service revenues, followed by Web hosting, non-hosting value added services, and hardware resell/leasing," says Daryl Schoolar, a senior analyst with In-Stat Group. "Access-service revenue dominance will continue because ISPs use this service as a platform upon which to build other services."

At Probe Research, which specializes in evaluating the telecom industry, analysts have recently warned that the environment in the wake of the terrorist attacks could fundamentally change prospects for all kinds of telecommunications and network service providers. "The importance of shocks is that they change both the rules and the environment for network and service evolution," says Probe Research analyst Allan Tumolillo. He says that the terrorist attacks could impact the telecom industry and network service provision several ways, including regulation and where network assets are located.