UFB business services – how much are ISPs making?

In this post I look at how much money is actually being generated by ISPs in NZ from selling UFB business services, uptake of UFB business services, and a few other bits and pieces.

According to Statistics NZ, as of October 2015, there were 1,661,000 residential broadband connections in NZ, and 316,000 business or government connections.

This means that we can take it on fairly good authority that 16% of broadband connections in NZ are provided to business and Government.

Looking at UFB specifically though, a press release issued by the Office of the Minister of Communications in February of this year stated that connections are currently going live at the rate of 12,000 p/month. Crown Fibre have indicated that about 1 in 8 connections, or 12.5%, are business services, which means that 1,500 business/government UFB connections are going live or being ordered each month.

Most retail pricing for business broadband plans fall in the range of $100 – $200, so let’s take the top end figure to account for additional sales made to these clients (IP voice, managed hardware, etc) and we come up with a theoretical figure of $384,000 p/month in “new” (more on that in a second) billing from UFB sales being distributed among the retail players.

Based on market share, new revenue from UFB business services would look like this:

ISP Estimated market share Monthly billing growth in UFB services sold to businesses
Spark 48% $144,000
Vodafone 21% $63,000
Vocus 16% $48,000
The rest 16.5% $62,000

 

The catch here is that the vast majority NZ business already have broadband, and the economy isn’t booming, so in gaining UFB business, one of two things is happening:

  • An ISP is taking the business of another ISP
  • The ISP selling the UFB service is moving their client from another service. In this scenario, business clients will more often than not be moving from a service that was more profitable for the ISP, so the key for an ISP is to get greater market share.

The pot is only so big.

The points to take from this data are:

  • The market size for UFB is finite
  • Market saturation for business broadband was essentially reached years ago, ISPs are now just churning clients to less profitable UFB services
  • With a current tally of 184,000 UFB connections live and 12.5% of those likely to be businesses, roughly 23,000 businesses are currently connected to UFB.
  • Market share. The same release issued by the Office of the Minister of Communications in February that I cited earlier also stated 184,000 UFB connection were live in total, and following the 1 in 8 rule, that makes about 23,000 business live on UFB.
  • If UFB will ultimately get to around 316,000 businesses/government entities, and 23,000 are live, UFB use by business/government is currently siting at 7%.
  • 293,000 NZ businesses are using something other than UFB to access the internet. Many will remain on HSNS or equivalent, but many more will move to UFB. Non-UFB carriers have a lot of business left to lose.

DTS has just over 600 UFB business connections live, giving us 3% of the current UFB business market in NZ. As a private company, we don’t have to reveal data like this, but I think is is good to give our staff, clients and partners a view behind the scenes, and to give them a feel for our growth and general position – which is very strong and growing fast.

It would be a BIG mistake to focus on UFB numbers as a sole indicator of an ISP’s success or failure. There is very little money in UFB, but UFB uptake does give a hint as to an ISP’s scale, and scale is very important in this industry.

Sorry for all the assumptions, this information isn’t as easy to come by as you might think.

Brendan Ritchie

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