Get ready for a ripple or two on on the ISP pond

When the Australian ISP Access 1 recently tried to arrest its losses by suddenly spawning a no-frills cut-rate service, thus undercutting its own largest customer - and then, scant weeks after declaring that its new services would "raise serious questions about the business model of other ISPs" - got sold by it owner Solution 6 to competitor OzEmail, it confirmed what most of us here already knew. That is, that New Zealand's Internet service sector is rather more mature than Australia's. But will the grown-up serenity last?

When the Australian ISP Access 1 recently tried to arrest its losses by suddenly spawning a no-frills cut-rate service, not much attention was paid on this side of the pond.

When it emerged that the new Access 2 service undercut Access 1’s largest customer, we might have raised the odd eyebrow.

But when, scant weeks after declaring that its new services would “raise serious questions about the business model of other ISPs”, their owner Solution 6 sold the lot to competitor OzEmail, it confirmed what most of us already knew.

That is, that New Zealand’s Internet service sector is rather more mature than Australia’s.

The fact that Access 1’s antics came from the hand of a central figure in our own ISP wars -— former Xtra boss Chris Tyler — is somewhat ironic.

Tyler’s runaway launch strategy last year had the desired effect of rapidly building Xtra’s customer base, and it did lead the market down to a new price point. But it was no way to run a business. Xtra could not provide adequate service to its burgeoning roster; it relied on some very poor Telecom in-house services and it got into an unseemly scrap with almost everyone in the industry.

This year, Xtra has embodied the local ISP trade’s new atmosphere. Tyler’s replacement, Bob Smith, now declares that Internet provision is “just like any other service business”, and runs his ISP on that basis.

With the launch of the Xtra business network, Smith has also been able to partner effectively, and to make a meaningful offering to the business market, two things Xtra failed to do in 1996. Next thing, it’ll be making money.

That stability is infectious. IDC’s second annual New Zealand ISP census shows that Clear’s ISP venture, Clear Net, has quietly built its customer base, although there is yet some debate about exactly where it ranks in the market.

IDC was also surprised to find that many small, regional ISPs — which had been expected to fold under pressure from the big players — have stayed in business. Although most of the growth is still focused on the three or four largest ISPs, provincial companies have remained competitive where the national providers are obliged to charge a higher rate for 0800 access.

Other regional players — the Waikato’s Wave Internet Sevices is a notable example — have succceeded through a combination of sound business practices and technical innovation. But in the same region, two other companies, Midland (one of the first commercial ISPs) and Jets, have failed and withdrawn from consumer dial-up services.

Midland’s founders have joined Auckland’s Netbyte and others in seeking to specialise in leased-line and other business services. This isn’t necessarily an easy option. Specialists such as KC Internet Services and Netlink have stayed on top only by paying close attention to their infrastructures and by leveraging wireless and stacked wide-band services to maintain their margins.

But business-focused ISPs do escape the crippling support costs of supporting new-user consumers. This a major issue for the likes of Xtra, which has outsourced customer support services in search of greater efficiencies.

Even so, it remains the default trainer of New Zealand’s Internet newbies. All too often they learn how to fly at Xtra and then they go off to enjoy the all-you-can-eat flat rates at the Internet Group (Ihug). If they’re smart, they also hang on to their Xtra accounts, which attract no standing charge.

Ihug is a unique case, and one whose entrepreneurial verve serves to round out the New Zealand market. Its embrace of satellite for the bulk of its IP bandwidth was widely decried earlier this year, but, by dint of some clever routing, it has worked well. Having bet the farm earlier in the year, the company now finds itself on-selling spare satellite bandwidth to grateful competitors in the Australian market.

Ihug’s new StarNet microwave service, one of only three of its kind in the world, already looks like becoming the most effective broadband wireless solution and, at around $1000, the first one within reach of the consumer market. But it is yet unclear whether higher speeds will be the greatest differentiator in the market, even when the ITU finally rules on a 56Kbit/s modem standard.

Indeed, the private talk among the big players is of movements on price, after a year’s stability. Xtra expected an announcement from Clear at the recent computer expo, and Clear is no doubt watching Xtra.

Any such movement could come as simple cutting of the hourly rates which have become the dominant charging model in the past two years, or as a move to packages selling blocks of time.

In the next year you can also expect ISPs to deliver more (and talk less?) in terms of business services, and to begin to grapple with the first wave of non-PC Internet devices — which will not be set-top TV boxes, but smart phones. Whatever happens, I have a feeling that next year won’t be quite as smooth and calm as the one just passsed.

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