Virtual ISP Changing the Paradigm for ISPs

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Virtual ISP - Changing the Paradigm for ISPs
Patrick Choi Director, Strategic Alliances and
Product Development August 14th 2000
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AGENDA

• The ISP Market - today and in the future
• The Wholesale Partnership Model
• Choosing a Partner
• Case Studies - ISP and ASP

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A CHANGING INTERNET MODEL

• Service model driven by market maturity and
  competition
• Increase competition in access services (xDSL,
  PSTN Dial up, Satellite, HFC Cable modem,
  Broadband WLL)
• New perceptions of value-added services
• New service demands (MP3, gaming, b-c hubs, VoIP,
  reliability)
• Internet access is becoming a commodity with
  proliferation of the Free ISPs lowering
  profitability

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RETAIL INTERNET MARKET
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GROWTH IN AUSTRALIAS ISPS

• Currently 700 ISPs divided into 3 tiers
• Tier 1 ISPs have in excess of 50,000 subscribers
• Tier 2 have a subscriber base of between 1,000
  and 50,000
• Tier 3 have less than 1,000 subscribers
• Large number of Tier 3 operators

CUMULATIVE NUMBER OF ISPs
Source Paul Budde Communication
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ISP MARKET -- CURRENT AND FUTURE

• Current Market
• The top 4 players have a nation wide internet
  access network
• Tier 2 and 3 players concentrate on geographical
  pockets across the country
• Relatively little consolidation to date amongst
  Regional ISPs
• Some players are attempting to gain subscribers
  through the free ISP model
• Prediction for the Future
• There will be consolidation at the top around
  Telcos at Tier 1 and 2
• Innovative entrepreneurs offering
  differentiated application services paradigm will
  continue to thrive
• Multiple network access (ATM/Frame Relay,
  wireless local loop, xDSL)
• More Non-traditional ISPs entering access market

NUMBER OF RESIDENTIAL SUBSCRIBERS
Source Booze, Allen and Hamilton
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WHOLESALE PARTNERSHIP MODEL
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QUESTIONS FACING ISPS

• How to keep up with rapid changes in technology?
• How to increase profitability?
• How to challenge emerging free services?
• Who are your competitors and how are they
  influencing your business?
• What are the real limitations on your business -
  now and in the future?

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THE PARADIGM FOR SURVIVAL

• Strong focus on market niches differentiated
  services
• Service level agreements
• Innovation, leanness, agility and flexibility
• Close customer relationships increasing the
  stickiness -- Customer ownership will be a key
  success factor
• New operations economies for dynamic cost
  structures
• Target SOHO, SME and residential markets
• Solve the critical mass problem
• Small customer base low returns
• Essential for niche service development
• Limited resources for RD and marketing

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DRIVE TOWARDS OUTSOURCING

• Delivery of the new ISP paradigm
• Allows a change in focus
• Changes the rules of competition
• Seizes new economies in operations
• Achieves a combined critical mass

ISP Focus
Technology Infrastructure
Sales Marketing Generating Revenue
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THE WHOLESALE ISP CONCEPT

• A business paradigm for carriers
• Generates additional carrier revenue streams
• Meets emerging demands of ISP/ASP marketplace
• Focus on core carriage and solution business and
  increase network utilisation
• Whats in it for ISP?
• Lowers operating cost by benefiting the carriers
  scale of economy
• Delivers innovative differentiating services
  through multiple access options offered by
  carriers.
• Scalability (network capacity and geographical
  expansion)
• Carrier grade Service Level Agreement
• Collaborative product development marketing

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NEW ACCESS COST BASES
Overflow Port Allocation Daily Offered Traffic
Basic Port Allocation Daily Offered Traffic
Time of Day Port Allocation Daily Offered Traffic
0
6
12
18
24
0
6
12
18
24
0
6
12
18
24
400 ports _at_ 100/port pa 40,000 pa
280 ports per day _at_ 100/port pa 28,000 pa
120 ports per day _at_ 100/port pats per 22,560 pa
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Current ISP Profit Model
Services Revenue
Network Related Cost of Service Capital Expense
Ingress Expenditure
Egress Expenditure
Capital Expense
Access
ISDN PRI Rental
Access
Routers
Bandwidth
Remote Access System
Bandwidth
Other IT infrastructure
Corporate Overhead (SGA)
Engineering Technical
Business Product Development
Sales Marketing
Profit Revenue - COS - SGA - Depreciation
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Current ISP Profit Model
Services Revenue
Network Related Cost of Service Capital Expense
Ingress Expenditure
Egress Expenditure
Capital Expense
ISDN PRI Rental
Access
Routers
Access
Bandwidth
Remote Access System
Bandwidth
Outsourced Network Dial up Port (PSTN)
ATM/Frame Relay xDSL
Other IT infrastructure
Value Add Services
Corporate Overhead (SGA)
Engineering Technical
Business Product Development
Sales Marketing
Profit Revenue - COS - SGA
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Improved Business Valuation
Valuation (M)
Subs (K)
/ Sub
293
285
83.5
Own
27.0
32
844
321.0
540
594
Netcom

593.4
400
1,484
Outsourced
440.6
280
1,574
12,500.0
1,136
11,000
Source Nortel Networks
ISPs that outsource their network functions tend
to realise improved stock performance and higher
valuation per subscriber
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CHOOSING A PARTNER
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WHOLESALE ISP REVENUE FLOW MODEL
Residential Retail Services Business
Retail Services Wholesale Services for
ISPs Helps introduce new cost structures Wholesa
le Services for the Market Gives ISP
differentiating services
Wholesale ISP And Retail ISP
Revenue Flow
Revenue Flow
Revenue Flow
Residential Customers
Internet End-Users
Business Customers
ISP
Revenue Flow
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PREFERRED WHOLESALE ISP MODEL

• Partner does not compete in retail

Wholesale Services for ISPs Helps introduce new
cost structures Wholesale Services for the
Market Gives ISP differentiating services
Wholesale ISP
Revenue Flow
Internet End-Users
ISP
Revenue Flow
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CHOOSING YOUR VIRTUAL ISP PARTNER
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WHOLESALE ISP SOLUTION
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Current ISP SOLUTION
ISP Owned Leased Telco Infrastructure

Server Farm



Internet
AAA

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WHOLESALE ISP SOLUTION
Public Internet ISP Owned WISP Owned
Server Farm
International Internet
Accounting
Wholesale ISP Internet IP-VPN Backbone

Authentication Authorisation
Southern Cross Cable
Domestic Internet
Server Farm

ATM IP
ATMIP


ATM IP
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AN ASP SOLUTION
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WHOLESALE ASP SOLUTION
Public Internet ISP Owned WISP Owned
WISP Network
Server Farm
International Internet
Telehousing
Wholesale ISP Internet IP-VPN Backbone

Southern Cross Cable
Domestic Internet
Telehousing

Telehousing
ATM IP
ATMIP


ATM IP
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THE SOLUTION

• High quality and availability for mission
  critical applications
• High speed fibre (ATM and Frame Relay) access to
  the ASPs customers
• Does not competitive with the ASP
• Ability to scale infrastructure with the ASP
• Value Added Services
• Content Distribution and scalable hosting
• Performance Planning
• Billing and Payments

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SUMMARY

• Traditional ISPs are a threatened species
• A new ISP paradigm - Virtual ISP - will be
  essential for survival
• The solution? Outsourcing to a Wholesale ISP
• The Ideal Virtual ISP Partner is one who does not
  compete with you in the retail market

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Our Network, Your Solution
E-nabler