ISPs are seeing too much Red

The fact that Canada has one of the world’s highest per-capita rates of broadband Internet access penetration gives us bragging rights, and no doubt pleases the major operators of broadband Internet services — the phone and cable companies. But it’s not such great news for other Internet service


The Canadian Association of Internet Providers (CAIP) says nearly one in five ISPs is losing money, due largely to their inability to compete with the big broadband providers. Statistics Canada’s Annual Survey of Internet Service Providers and Related Services bears this out. The survey published in December found that in spite of heavy cost-cutting, Canada’s ISPs lost an average of 4.9 cents on every dollar of revenue in 2002.

Heather Archibald of Statistics Canada’s services industry division says a key factor in those losses is ISPs’ costly efforts to compete in broadband service.

The problem is simple. Only the cable companies have the coaxial cable networks to provide cable-modem service, and only the phone companies have the local loops to provide digital subscriber line (DSL) service. If you want to compete with them in offering broadband service, you pretty much have to resell their services. And according to Jay Thomson, president of CAIP, the wholesale rates at which small ISPs can get those services simply don’t make resale a competitive proposition.

That’s not to say ISPs aren’t doing it. Very few independent ISPs resell cable-modem service, thought Thomson says there are a few, mostly Quebec-based companies and a few others that get bandwidth from small cable operators that don’t sell Internet services direct to the public. But most small ISPs in markets where a major telco offers DSL are reselling the service, he says.

The catch is, Thomson says, that small ISPs can’t make money reselling DSL. They either match the telco’s price and lose money, or they set their prices higher than the telcos and try to offer customers something else that will persuade them to pay the premium.

Broadband isn’t just a headache for smaller players. Big companies that have built their business on easy-to-use Internet access for the masses — that is, AOL Canada Inc. and Microsoft Canada Co.’s MSN Canada — also have to address the broadband issue. And they are.

AOL already offers AOL Broadband in British Columbia, Alberta and Ontario, and plans to roll it out to the rest of the country by the end of 2004, says Craig Wallace, president and CEO. Like other ISPs, what AOL is doing is reselling DSL, and at essentially the same prices as the telcos — $29.95 a month for the first three months and $44.95 a month thereafter.

The company also launched this fall a service called Netscape Online, which is dial-up but uses data-compression tricks that AOL claims can make a dial-up connection look about seven times faster than it would otherwise – for $18.95 a month.

Statistics Canada’s study notes that in 2002, broadband access revenues surpassed dial-up revenues for the first time, making up 53 per cent of all ISP revenues. In the same year, total employment in Canadian ISPs declined by a quarter, due partly to cost-cutting and partly to ISPs closing down. Small and mid-sized ISPs are having trouble competing in a broadband world, but if some of them don’t find a way, Canadian Internet users will face less and less choice.

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Jim Love, Chief Content Officer, IT World Canada

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