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Internet service providers: The need for speed

17 March, 2010

More than 85% of the Australian population uses the internet daily. Growth in subscriber numbers and data downloads has delivered average revenue growth over the past decade of 13.3% a year to the Internet Service Providers (ISP) industry.

From dial-up services to broadband and mobile wireless internet services, subscribers have migrated to the technology that can deliver what they need - faster, cheaper and larger downloads. Next up will be the $43 billion fibre-based National Broadband Network (NBN), and advanced 4G LTE wireless networks that fuel further growth.

In 2009-10, the Internet Service Provider industry will generate revenue of $5.9 billion with net profit after tax of close to $380 million. It has been a tremendously successful decade, considering that prior to 2000 the industry struggled to turn a profit.

The number of fixed broadband subscribers has increased by an average of 22.8% a year over the past five years. Total data downloads have expanded by 60% per year over the same period. There has been rapid migration from dial-up connections to broadband, facilitating higher use and more revenue. Despite access prices falling, the move to speedier services and larger download limits has meant more revenue for ISPs.

Over more recent years mobile wireless internet has surged, with subscriber numbers more than doubling on average each year over the past five years. This growth has come at the expense of fixed dial-up and broadband connections, which have been in decline since peaking in 2007 at 6.8 million connections.

It is now time for the NBN to foster further industry growth, with the potential to deliver larger download capacity that is faster and cheaper. The Federal Government plan outlined in April 2009 involves the establishment of an NBN company (NBN Co.), which will be at least 51% government owned, to oversee the network build and act as the wholesale entity. NBN Co. will sell network access and capacity to telcos for resale to businesses, consumers and government agencies.

The actual cost of building the network could be less than the $43 billion price tag if state governments, local councils, universities, the telcos and other fibre-owning organisations cooperate in the rollout of the NBN. The lower the final cost of building the NBN, the lower the final retail price and the greater the demand for NBN services.

This would deliver further scale economies and greater competition. Importantly Telstra has signalled its cooperation with the NBN build, acknowledging the inevitable migration of subscribers from Telstra's fixed-line copper network to the more advanced NBN, should the two coexist.

The successful rollout of the NBN is expected to underpin average industry revenue growth of 9.0% a year over the five years to 2014-15, with ISP revenue reaching $9.1 billion by 2015. Wired and wireless connectivity of 100+ Mbps will facilitate mass market adoption of VoIP and IPTV, smart grids, true e-health and e-learning, innovative online shopping and many other applications.

Ultimately, the establishment of 4G networks and the NBN will increase consumer and business reliance on communications services.

Source: IBISWorld

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Philip Shaw | Wednesday, March 17, 2010, 10:09 AM
This article reads a little like a PR serve up from the government or NBNCO. An interesting article by Malcolm Colless in yesterdays Australian gives the other side of the story. -Each house or business premises will have the fibre cable brought to the building, but the set top box at the end of it will cost several hundred dollars and only have a limited shelf life, and it is not known who will fund it, owner or NBNCO. -Further cabling within the building will be at owners expense. -The $43B cost is totally unquantified, there is no business plan yet, and will be a huge burden on taxpayers in the future. -There is no way any time soon to know what the service will cost consumers, but it will be expensive. -Telstra already offers a 100 megabit/sec service to a potential million homes in Melbourne but only 200 people have taken it up at $269 per month. -4G wireless will deliver better speeds at a fraction of the cost. Consumers will only pay so much for speed, after that cost becomes the main consideration. The price of speed is not totally elastic. This massive white elephant in the making puts the insulation debacle in the shade. Say "No" to the NBNCO
Bruce Davis | Tuesday, January 4, 2011, 7:34 PM
I had a fixed broadband connection that was costing me $29.95/month, but I was not fully utilising it and had spare capacity left over. I now have a mobile USB device which costs $12.95/month and provides all the speed and download capacity I need. If I exceed my quota I just pay the few cents extra and I have the advantage that I can use it anywhere. I don't see the possibility that I will go back to a fixed connection. Even if I did, why would I want to pay $56.00/month for it? I think I am a fairly average user and would be one of 85% of the population, and yet they are saying that there will be an 85% uptake of the NBN at $56.00/month? I just don't see it.....?