BMI-TechKnowledge has warned that despite huge growth in the local Internet services market, high consolidation is looming in the next five years.
South African Internet service revenues have grown by 27% from 2007 to 2009, and are expected to grow at a CAGR of 11% over the next five years, to hit R28 billion.
Despite this revenue growth, Brian Neilson, research director at BMI-TechKnowledge, cautions that competitive intensity among Internet service providers (ISPs) is growing just as quickly.
Niche players
Neilson points out that it's too early to determine who the outright winners and losers will be in the expected industry consolidation.
“Players that choose narrow niches, including some highly focused infrastructure deployments, might be better positioned,” says Neilson. “Such infrastructure niches could include metro fibre and point-to-point wireless connectivity where obvious gaps exist or cost advantages exploited.”
Neilson adds: “While most large ISPs have reversed their earlier plans to build their own access infrastructure, they are also not holding their breath for local loop unbundling, but are instead seeking out innovative last mile alternatives.
“These include point-to-point microwave links in the metro areas, and some plans for fibre and high-speed DSL links in business parks and gated communities.”
Growth gains
While decreasing Internet prices have led average revenues per user to fall, growth in demand has led to net growth in both connections and revenues. The research firm found there's been significant growth in ADSL, WCDMA/HSPA, and metro fibre access for Internet connectivity.
There has also been strong growth in virtual private network and hosting services. Neilson explains that ISPs are playing a major role in this market in direct competition with major system integrators and the incumbent telecoms operators.
BMI-TechKnowledge points to players with their own IP core network, such as Internet Solutions, which are making gains in the wholesale ADSL space. Niche players are also springing up in the provision of hosting services and are buying bandwidth from Seacom.
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