Boom time for ISPs

Internet service providers are expecting strong revenue growth this year, according to a survey conducted by KPMG and Planet Direct.

The robust estimates among ISPs were helped in part by confidence in the business subscriber market, the survey stated. Though most ISP subscribers are not businesses, the study showed that business customers generate $33.95 per customer, while residential subscribers generated a proportionally lower amount at $19.50 per customer.

The survey also showed that on average, ISPs are expecting to grow 86 percent from 1997 to 1998. Further breakdown of the survey figures showed that the business subscriber market is expected to grow 128 percent, compared to 66 percent for the residential market.

The finding suggests that churn rate, which measures the percentage of subscribers discontinuing their ISP services, may play a significant role in the growth difference. While KPMG measures the residential churn rate at 3 percent, business subscribers were found to stick to their services more consistently, measuring only a 1.6 percent churn rate.

Controlling churn has been a headache for many ISPs, which are trying to retain customers by offering services and membership perks. Last month, a study released by Strategis Group showed that ISPs were suffering churn rates five times higher than any other telecommunications service.

Further results released yesterday showed that smaller local ISPs demonstrated more profitability than larger national ones.

"The result contradicts assumptions made by some market analysts who suggest that lower marketing costs among smaller ISPs lead to increased profitability," KMPG spokesman Dylan Charles said in a statement. "Instead, it shows that in some cases, as more customers are added, certain costs per subscriber increase."

The study also showed that email and Web hosting were the most popular products ISPs offered, while news services and downloads came close behind.