Understanding the Trans-Tasman BB Gap
Study finds Australian ISP margins smaller than in New Zealand
SYDNEY, 1 June 2012: The gap between Australian and New Zealand broadband allowances is more likely to be the result of competitive pressure than the underlying costs of service provision, according to new research by Sydney-based telecommunications analyst firm Market Clarity.
In spite of a widespread perception that New Zealand ISPs pay too much for services such as domestic and international IP Transit, the study, Understanding the Trans-Tasman Broadband Value Gap: ISP Costs in Australia and New Zealand, suggests that these costs are comparable between Australia and New Zealand — and may even be lower for Kiwi carriers.
The study, based on interviews with retail ISPs on both sides of the Tasman, also finds that Australian ISPs devote more ARPU to wholesale service costs (such as ADSL access services, domestic backhaul, and IP Transit) than their counterparts in New Zealand.
“The results are surprising,” said Market Clarity CEO Shara Evans. “There is a widespread perception, particularly in New Zealand, that the costs of international services drive the difference between the allowances offered Australian and New Zealand broadband customers.
“However, our research suggests that other factors are more significant. These might include the different domestic regulatory regimes in the two countries, and the competitive pressure brought about by Australia’s much larger number of retail ISPs.”
After all network costs (network access, domestic backhaul and IP Transit) are taken into account, she said, the research shows that Australian retail broadband ISPs retain a median profit margin of 26.3% of ARPU, while New Zealand ISPs have a median margin of 38.8% of ARPU.
Overall broadband profit margins were much more difficult to determine, as many ISPs only tracked network costs on a per product basis. Other expenses such as customer acquisition, customer support, internal IT, business administration, depreciation, interest and tax, may be tracked on a company-wide basis and are not allocated against individual products.
“Our interviews with ISPs in Australia and New Zealand also revealed different concerns about what might prevent business growth in the future,” Ms Evans said.
“In Australia, ISPs are concerned at aspects of the NBN pricing model. In particular, they are worried that the NBN’s CVC pricing could emerge as a future constraint to growth in customer allowances. ISPs are also worried about the large number of NBN POIs (Points of Interconnect).
“However, New Zealand ISPs were more likely to nominate lack of consumer access to content as holding back growth.
“Although some New Zealand respondents to our study said their broadband growth is constrained by factors like IP Transit costs, this was not corroborated by our comparison of their cost base relative to Australian providers,” Ms Evans said.
Understanding the Trans-Tasman Broadband Value Gap: ISP Costs in Australia and New Zealand is available as a free download from Market Clarity’s website.
About Market Clarity
Market Clarity is an award-winning telecommunications analyst firm founded in January 2006 by leading Australian telecommunications researcher and strategic consultant, Shara Evans. The firm covers all aspects of telecommunications, including traditional and converged services and technologies. Market Clarity’s extensive databases of technical and market information cover a wide range of facts and figures on the technologies and services that are shaping the Australian telecommunications market. Market Clarity’s GIS tools and research databases enable the correlation and presentation of highly complex information in an intuitive geographic (map) format.
Market Clarity’s insights are derived from a deep understanding of technology, coupled with comprehensive research, which examines each segment of a service’s value chain as well as underlying population demographics. By leveraging its engineering knowledge with an ongoing primary research program, Market Clarity provides insight, intelligence and advice on all aspects of the Australian telecommunications market including traditional, converged and future technologies. Market Clarity’s unparalleled market knowledge and research databases are brought to all consulting engagements.
Market Clarity’s contribution to telecommunications in Australia was recognised by the telecommunications industry’s peak body, the Communications Alliance, which awarded the company its 2007 ACOMMS award for Services to the Industry – Professional Services.
Market Clarity is headquartered in Sydney, Australia.