IDC: LatAm's ISP Market Continues to Grow

CORAL GABLES, FLA. (01/26/2000) - Overall revenue for Latin America's ISP (Internet service provider) market throughout the region grew 22 percent, reaching a total of US$1.41 billion in 1999, according to a recent study by International Data Corp. (IDC) Latin America.

Eighty-five percent of the total was derived from services provided to end users, including corporations and individuals, while 8 percent came from services provided to other ISPs. The remaining 7 percent was split between Web-based EDI (electronic data interchange) and other services.

According to the IDC study, the region's ISPs invested a total of $730 million in technology in 1999, making the ISP market "an increasingly important (market) segment," said Annika Alford, research manager at IDC Latin America.

The ISPs interviewed estimated that the investment figure will increase by 42 percent this year.

Growing demand for Internet access and services brought about aggressive competition, which in turn brought down prices, Alford said. Numerous foreign companies entered the market, leading to many acquisitions, which caused IDC to dub 1999 "the Year of the Acquisition," Alford said. The total number of ISPs in the region actually decreased from 1,300 in 1998 to 1,000 by the end of 1999 due to the acquisitions, she said.

Last year also saw the emergence of pan-regional ISPs seeking to combine access with content within portals, Alford said, adding that this model has become even more developed in Latin America than in the U.S. Because of its limited size, the Latin American market cannot support as much competition as the U.S. market, so combining access with content helps Latin American portals to capture more market share, she said.

Although some Latin American ISPs seek to function as portals, targeting the consumer market and seeking revenue from electronic commerce and ad space, other ISPs have concentrated on targeting the corporate market, Alford said.

These companies provide access -- whether broadband or traditional -- and added services to brick-and-mortar corporations and electronic retailers, she said.

While the Latin American market can bear such ISP specialization, some companies have positioned themselves to participate in both the consumer and the corporate markets, and what remains to be seen is how successful they will be, Alford said.

The IDC study also showed that in September of 1999, there were a total of 4.2 million Internet accounts in the Latin American region. Ninety-eight percent of those accounts were dialup, making that segment the most important within the Internet access market, Alford said.

In 1999, the consumer dial-up market matured and grew significantly, with dial-up access becoming a commodity, she said. According to the IDC study, home and individual users made up 75 percent of the total dial-up market, with business users accounting for 21 percent, and the government and education 2 percent each.

Unlimited access plans became very popular in 1999, and accounted for 65 percent of the dial-up accounts of the companies included in the study, Alford said.

Last year also saw the emergence of price wars in the dial-up space, especially in Brazil and Chile, which caused prices to go down, she said. The average price in the region for dial-up access decreased 37 percent from $30 in 1998 to $19 by the end of 1999, she added.

According to the IDC study, the total number of broadband accounts was higher than the total number of dedicated connections in the region, Alford said. This might indicate somewhat of a leapfrogging occurring in the region, where companies and consumers are beginning to turn to cable, DSL (digital subscriber line) and wireless connections in order to take advantage of the increased bandwidth, she said.

Throughout the region, about 27 percent of retail revenues -- those derived from services provided to end-users -- comes from services that are not access related, Alford said.

The IDC study also showed that e-commerce services have become a top revenue generator, encompassing Web hosting, site design, maintenance and provision of online transaction services, said Alford.

Of the total revenue derived from extra services in 1999 in the region, IDC found that e-commerce services accounted for 26 percent, the largest piece of the pie. Web-hosting and collocation came in a close second with 24 percent, followed by security services with 15 percent, design services with 11 percent, IP-VPNs (Internet protocol-virtual private networks) with 5 percent, fax over IP with 1 percent, and the remaining 18 percent attributed to other services.

In the future, IDC predicts that the percentage of retail revenues coming from access will shrink significantly due to the commoditization of dial-up services, Alford said. Assuming that regulatory decisions allow voice-over-IP to develop and flourish in Latin America, this will be an area of high growth, together with Web hosting and e-commerce, she added. On the broadband side, DSL will enjoy the most growth, with wireless running a close second.

IDC also predicts that between 1999 and 2004, the Latin American ISP market will experience a compound annual growth rate of 42 percent, Alford said.

According to this prediction, total revenues for the Latin American ISP market will grow from $1.41 billion in 1999 to $8.13 billion in 2004.

IDC is at http://www.idc.com/.

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