No margin for profit

It’s been known for a while that smaller ISPs are struggling to make money. Latest figures from Market Clarity help to explain why.

The recent report from Market Clarity (PDF) analyses the cost structures for tier 2 and 3 ISPs in Australia and New Zealand. When you add together the cost of access, backhaul and IP-transit, ISPs in Australia report a median profit margin of 26.3 per cent. Out of that, ISPs must also take in the cost of marketing, support and other business overheads. Yet, in New Zealand, the margin is far higher — at 38.8 per cent. Why the big difference?

In this week’s Twisted Wire podcast, CEO and founder of Market City, Shara Evans, takes us through the figures and discusses likely shifts in costs in the years ahead. In particular, we examine the impact of the National Broadband Network (NBN).

The study shows that network access costs constitute 73 per cent of total network expenditure — it seems unlikely that this figure will go down when the NBN hits town. In fact, it could increase access costs, as a proportion of the total cost of doing business.

We ask whether pricing regimes will mean ISPs will struggle to make a profit, particularly in an NBN world.

First published on ZDNet

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