ISPs need to expand broadband services – Gartner

According to a report by Gartner, ISPs will see an 8.8 per cent growth in broadband revenues for the next three years. But the analysts warned that operators will have to take steps to secure these revenues.

ISPs need to expand broadband services - Gartner

Gartner said that total subscriber growth in Western Europe began to slow down in 2006 but was still some way off ‘saturation point’.

‘Providers are going to have to work harder to both attract new customers and increase average revenue per user (ARPU),’ said Susan Richardson, principal research analyst at Gartner. ‘As competitive pressure from alternative operators increases, features such as greater speeds will no longer be a differentiation factor but a means to deliver the kinds of web-based applications, voice and video services which users will demand.’

The UK, alongside France and Germany, leads the way in terms of household broadband penetration and Gartner predicted 64.4 per cent of homes in the UK will be broadband-enabled by 2010. Richardson said that where broadband penetration was high, there was still a case for targeting late adopters.’

Gartner said that ISPs would have to adopt different strategies in different countries to maximise future earnings.

‘In other markets providers will need to focus more on existing users, as a large percentage of the population is unlikely to ever adopt broadband. In both scenarios however, maintaining or increasing average revenue per customer for existing customers (ARPU) is crucial,’ she said.

The analysts advised ISPs to develop additional services to meet users’ needs, such as additional download bandwidth as well as storage for online music, photo storage, wireless connectivity, firewall protection and security services.

‘Without value-add, providers have to resort to price as a short-term differentiator, which leads to price reductions. With service differentiation, the competition is no less intense, but by giving the customer more value wrapped into the price they already pay providers can maintain their revenues,’ said Richardson.

She said that profitable bundled services could be built by carefully modelling customer usage patterns. ‘ARPU continues to decline across Europe, however, in the most competitive countries such as France and Sweden, the slide has slowed dramatically, with the level of bundling becoming more of a competitive differentiator than basic package price,’ said Richardson.

But she warned that a slowdown in growth was inevitable in Western Europe given the tremendous growth it has enjoyed over the last few years, but by developing additional services and focusing on service innovation ISPs can ‘enjoy long and successful relationships with customers for years to come.’

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