As growth rates in providing basic Internet connectivity come under pressure, service providers must tap into fast-expanding niches in order to continue to grow their businesses.
That’s the view of analyst firm BMI-TechKnowledge, which has this week published a new report on the South African Internet services market.
“Between commodity connectivity services, virtual private networks, hosting and new-generation cloud services, BMI-T’s overall market growth forecast is less than 10% compound annual growth over the next five years, showing just how critical it is to play in the fast-growing market niches,” the company said.
“While all indicators related to Internet usage trend sharply skywards, revenue growth from connectivity services — the staple diet of the industry — remain muted as prices continue to plummet. This is great news for consumers, but not so great for the wide array of players that make a living from this industry.”
Analysis shows that market annual growth rates have declined from over 30% five years ago to less than 10% in 2015, BMI-T said. This is despite the fact that this market includes niches like fibre broadband services, which are growing at close to 80%/year, but which still make up a small fraction of the total market and so have little influence yet on the overall growth numbers.
Pricing pressure comes from competition in commodity connectivity services, including wholesale services such as those provided by Telkom’s Openserve division, BMI-T said.
While this leads to lower retail prices, wholesale prices are structured in such a way as to favour the larger Internet service providers. Consolidation is an ongoing global and national trend, and recent initiatives focused on consolidating and acquiring wireless ISPs is clear evidence of this, the company said.
BMI-T predicts a similar trend in the fibre-to-the-home market down the line, as many entrepreneurs who have started deploying fibre in suburbs will choose to exit the market when the time and price is right, while the “big guns” in the fibre market are waiting in the wings to buy them out.
There are growth opportunities, however. Public cloud services represent a growth wave for telecoms carriers and Internet service providers, but it’s an opportunity that is partially mitigated by growing competition from large global international players such as Microsoft and Amazon.
However, local companies are still able to benefit from this growth market, and to date systems integrators have been particularly successful, says BMI-T director Brian Neilson. — © 2016 NewsCentral Media