Discussion Papers

Dieter Elixmann, Anette Metzler

Marktstruktur und Wettbewerb auf dem Markt für Internet-Zugangsdienste
Nr. 221 / Juni 2001

Summary

Enabling the use of the various services on the internet for the end-user a specific class of companies providing access to the internet is necessary – the so called internet services providers (ISPs). The study firstly aims at identifying providers in the market for internet service provision disposing of similar characteristics, thus, allowing the construction of types of ISPs. Secondly, main features of the current market dynamic are examined. Thirdly, the study analyses barriers to entry and fourthly major forces determining the competitive position of types of ISPs are investigated.

The study identifies seven different types of ISPs: local ISPs, national ISPs, international ISPs (internet backbone providers), online service providers, telephone companies, virtual ISPs and finally universities and big companies. The various types differ mainly in their business modells regarding the allocation of their key activities across the value chain as well as their product focus, customer focus and service portfolio.

The market for internet service provision is showing substantial change at the moment. This process essentially is characterised by the following features: privatization and IPOs; increasing internationalization of the providers´ business activities; the increasing importance of attractive content; new options for access of end users to the internet and new tariffs; product differentiation and expansion of the network infrastructure.

Entry barriers to the ISP market consist mainly of cost advantages of established providers due to economies of scale and economies of scope because of vertical integration. High barriers to entry exist mainly in the local loop because of sunk costs and the potential of strategic behaviour by the incumbent, engaging in "foreclosure" and "tying". The competitive position of ISPs is being affected mostly by competitive activities of direct and potential competitors. Furthermore ISPs may find themselves exposed to the bargaining strength of suppliers (especially of carriers) primarily for services in the local loop and in the regional carrier market.

An overall assessment of the competitveness of the ISP market yields that the market for internet service provision at large is highly competitive at the moment. Yet, it has to be stated that on specific stages of the value chain, in particular in the local loop and the transnational internet backbone, there are only a few suppliers ISPs are dependent on. Moreover, the ISP market is very dynamic with respect to the number of competitors and their market positioning. A stable and successfull business model, however, does not seem to have been established yet.

Only German language version available.

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