Big telecom firms continue to dominate market


While small, independent Internet Service Providers (ISPs) drove the innovations in the Internet access market, telecommunications companies have since regained control, effectively shutting down the upstarts, say Penn State researchers.

Now fixed-line operators are using their infrastructure to corner broadband services as well, said Carleen Maitland, assistant professor of information sciences and technology. To compete, ISPs are offering broadband services whether or not that makes financial sense.

The result: A continued consolidation of the broadband Internet access market as ISPs are bought up, go bankrupt or affiliate with larger companies.

"The management challenges for small companies going from dial-up to broadband services are great," Maitland said. "In addition, ISPs gain little competitive advantage from offering such services because everyone else is offering them, and the telecom firms have scale advantages."

These findings were presented Sept. 6 at the 15th Biennial Internet Telecommunications Society Conference in Berlin in a paper, "The Broadband Internet Access Market: Market and Firm-Specific Forces Influences the Participation of ISPs." Co-authors were Annemijn F. van Gorp, a Ph.D. student in the Penn State School of Information Sciences and Technology (IST), and Heidemarie Hanekop, a researcher with the Sociological-Research-Institute, University of Goettingen, Germany.

The researchers studied a mix of local, regional and national ISPs in Germany, the United Kingdom and the Netherlands. Some of the firms were small (two employees) while others employed 500--similar to the American ISP market.

Particular attention was placed on the development of the market for DSL services provided by telecommunications or fixed-line companies as well as ISPs.

With fixed-line operators initially slow to offer Internet services, ISPs were able to carve out a market despite dependence on the telecom companies' infrastructure. But when the telecom companies began to understand the Internet market, they made greater use of their infrastructure technologies.

The researchers point out that not all ISPs fell victim to the fixed-line operators. One Dutch ISP that recognized DSL was in the future chose to affiliate with a national telephone company. That ISP has so far survived the consolidation trend.

Other independent ISPs that survived provided more choices to consumers in access modes such as wireless, DSL and cable, Maitland said.

While the decline of the independent ISPs may have been inevitable because of normal market forces, the growth in the mobile Internet market--where few ISPs are competing--may offset the sting of consolidation for most consumers.

"If ISPs can specialize with the 'right' value-added services, they may have enough market share in the fixed Internet access market to stay afloat," Maitland said. "If not, then the telecom operators, fixed and mobile, will determine the future of ISPs."

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Last reviewed: By John M. Grohol, Psy.D. on 21 Feb 2009
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