Companies in this industry provide an internet service, whether they own telecommunications infrastructure or not. Revenue is simply derived from the provision of an internet service to all consumers, business and government.
In 2011-12, this industry will generate $6.41 billion in revenue. Internet service providers (ISPs) represent the fastest-growing industry in the telecommunications sector, recording 2.0% per annum growth in the five years through 2011-12, despite a 2.7% decline in 2010-11.
This reflects the growing importance and influence the internet is having on the day-to-day lives of consumers and businesses. More than 88% of people and 95% of small businesses use the internet daily, as entrenched services such as general browsing, e-mail and social networking make the internet a business and life necessity.
In the past five years, broadband market share is forecast to have jumped 57.2 percentage points to 90.4% of fixed subscribers. There is expected to be 6.16 million fixed line subscribers in 2011-12.
Rapidly advancing broadband penetration is enabling faster service delivery to more businesses and consumers. This is boosting usage by facilitating access to various data-intensive applications such as online gaming, online commerce, video sharing and content downloads. The increase in broadband penetration and resulting growth in data volumes has been the major driver in the forecast 2.0% per annum growth in the five years through 2011-12.
The industry has undergone significant consolidation in the past five years, which resulted in the number of ISPs falling by an annualised average 0.9% to a forecast 425 in 2011-12.
The importance of scale and exposure has meant that operators have become much larger, which resulted in employment increasing 4.2% per annum to a forecast labour force of 8460 in 2011-12. Part of the employment increase will represent the beginning of the massive National Broadband Network (NBN) project. This $43-billion project will ultimately usher Australian society into a new era of living and business.
As access providers, ISPs will benefit from another five years of phenomenally strong revenue growth. Over the five years through 2016-17, industry revenue is anticipated to grow 10.8% annually. By 2016-17, the number of fixed line subscribers will reach 8.3 million and industry revenue will hit $10.7 billion.
Products and markets segmentation
Businesses have been increasing as a proportion of total subscribers since September 2006, as rapidly improving internet speeds have become increasingly important to business operations.
With internet access necessary for communication, research and operational purposes, internet penetration among businesses has traditionally been higher than households.
In June 2008, the Australian Bureau of Statistics (ABS) released information pertaining to 2006-07, which found that 86.5% of businesses had internet access. Since that time, internet penetration has increased, however, the increase has been driven by businesses adopting mobile internet connections.
The growing importance of the business market is exemplified by the rapid rise in business data use. As internet access and, in particular, a web presence is on the rise, the data use proportioned to businesses is skyrocketing.
The volume of data downloaded by businesses increased by 60% when comparing the June 2009 quarter with the December 2008 quarter. The data volumes used by businesses have jumped so rapidly that the proportion of use has gained 10.3-percentage points, year-on-year, to stand at 24.4% of overall data volumes in 2008-09.
Households are expected to represent approximately 83% of total internet subscriptions this year. Household internet penetration is significantly lower than internet penetration in the business market.
Given these respective shares and the falling price of broadband access in particular, there is further scope for increased household penetration within Australia.
However, the consumer preferences appear to be changing, with mobile connectivity the booming access product towards the end of the five-year period through 2010-11.
However, the scope for growing internet access will increase with the building of the NBN, which is planned to give 90% of Australians access to high-speed fixed line access.
Telstra Corporation Limited accounts for 42.5% market share followed by iiNet Limited (10.1%), SingTel Optus Pty Limited (8.5%) and TPG Telecom Limited (4.4%).
The ISP industry is expected to remain the star performer within the telecommunications sector over the next five years. In 2015-16, IBISWorld forecasts the ISP industry will overtake the wired telecommunications industry as the second-largest industry, in terms of revenue, in the Australian telecommunications sector. Revenue growth will average 10.8% per annum over the five years through 2016-17, with revenue reaching $10.7 billion.
The industry’s expansion will be propelled by further gains in internet use and a return to subscriber growth as the NBN is rolled out across the nation. The number of fixed internet subscribers is projected to return to growth, forecast to increase 6.4% per annum to 8.4 million.
To purchase IBISWorld’s full, 47 page report on Australia’s Internet Service Provider’s visit: http://www.ibisworld.com.au/industry/default.aspx?indid=1832
Karen Dobie is the general manager of IBISWorld, Australia’s richest source of business information.