Core services to dominate net market

New web-based services will form only a tiny part of the revenue that operators and Internet service providers can expect over the next few years, according to a leading industry consultancy.

Western Europe's fixed Internet market is set for a sixfold increase in revenues, to a total near [epsilon]60 billion in 2005. But according to a study due to be published this week by Analysys Ltd., of Cambridge, England, only 13% of that total will be from electronic commerce transactions, advertising and applications service provider (ASP) business.

Instead, the main revenue source will come from what it calls core activities: Internet access, services such as IP virtual private networks and hosting and platform provisioning. New web services, in contrast, can be seen as using the Internet to enable content and commerce.

"The bulk of the market is in the core [activities]," said Tim Hills, senior analyst at Analysys. But if the web services will generate much smaller revenues, it is the faster growing market segment, predicted to grow at 50% a year to over [epsilon]7 billion by 2005. In contrast, core services such as Internet access are predicted to grow at 27% a year.

The predicted revenue split is "realistic", said Hills, and should not surprise the operators and ISPs. "There was an enormous amount of hype concerning ecommerce last year," he said. "People confused the value of goods sold [electronically] with the actual money ISPs could make out of that," he added.

Hills does not expect that the ISPs and telecoms operators will dominate the non-core segment. The Internet is just too open, he said. "Too many specialists can get in: what do the ISPs know about it all?"

That said, there will be money made by them in the new web services. Hills cites operators like Cable & Wireless plc, of London, which is not only providing infrastructure for ASPs to provide services but it is also offering direct ASP provisioning to end users.

Analysys' findings shows the continuing importance of basic access and of operators having a strong infrastructure presence. "Infrastructure is going to be key," said Hills.

The main source of the six-fold growth is subscribers. Analysys expects the figures to go from 20 million to just over 110 million subscribers in 2005. Residential users will continue to form the majority of subscribers--Analysys counts multiple subscribers in a business as one entity. And they ire projected to rise from 84% in 1998 to 87% in 2005.

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