“Consequently, margins on consumer broadband are often particularly slim. Although there has been a boom over the last five to ten years as businesses have adopted DSL, and these margins are usually higher, the honeymoon period is over and the market is now at a point of relative saturation.
In the consumer market customers expect free hardware with their broadband packages, which pushes costs up and profits down and can strain the ability of smaller ISP partners to compete effectively. In the case of larger providers, the number of users on the same data pipe (the "contention ratio") has increased significantly.
With many ISPs investing heavily in local loop unbundling recently, and with the uncertainty surrounding BT's 21st Century network, carriers may be investing in a network which is going to be out of date before it is implemented. Many European countries are trialling the potential of fibre-to-the-home / neighbourhood, which can offer speeds of up to 100Mb/s, and is capable of handling massive amounts of data. So in the near future, it is highly likely that channel partners will have to invest in more infrastructure to offer this connectivity proposition.
So how can resellers and ISPs survive in such a challenging environment?
One way is to embrace new standards. Most providers are familiar with ADSL (asynchronous digital subscriber line) and SDSL (synchronous DSL) technologies, which provide broadband with varying up- and download speeds. The benefit of these standards is that as the technology improves, the speeds which can be provided to businesses and consumers increase as well but without needing to change the existing copper infrastructure.
VDSL2 is another permutation of the same creature, with potential speeds of up to 100Mb/s, but because it still uses copper to transmit data signals it does not require ISPs to invest in new infrastructure in order to be able to offer greater bandwidth speeds to customers. All companies requiring high speed access technologies can benefit from VDSL, but sectors such as hospitality, education and retail, which all depend on providing high bandwidths to large numbers of subscribers, will see particular benefit from it.”
Pearce concludes, “The potential of the technology is significant and whilst many bigger businesses are still paying large amounts for leased line technology, VDSL2 is fully capable of providing similar speeds at a fraction of the price. As a result, smaller channel partners that would not usually be able to offer dedicated leased lines to businesses because of the expense involved can make very large margins by serving significantly bigger companies than they were previously able to.
Although many smaller service providers face challenges in the near future, the rise of new technology offers clear new revenue streams, without the risk of significant infrastructure investment and capital expenditure. Providers can not only speed up their existing offerings and offer bandwidth-intensive services, but can also use technologies like VDSL2 to expand their offerings and serve new markets, surviving the current spate of rough weather and emerge profitable into sunnier times.”