Local Internet services revenue would likely grow to R28-billion a year by 2014, information communication technology consultancy BMI-TechKnowledge (BMI-T) forecast on Monday.

A recent study had revealed that Internet services revenue grew at a compound annual growth rate (CAGR) of 27% between 2007 and 2009, while revenues were expected to grow at a CAGR of 11% over the next five years.

BMI-T research director Brian Neilson pointed out that competitive intensity among market participants was growing at a similar pace, which indicated that the industry was set for further consolidation over the coming five years.

The consultancy highlighted that while a lot of focus had been placed on the growth of cellular Internet statistics in recent years, the market share gains made by fixed-line operator Telkom through its Telkom Internet business over the past two years, has been a “subtle” market shift.

It noted that Telkom Internet’s retail asymmetric digital subscriber line (ADSL) growth had outstripped that of most competitive Internet service providers (ISPs).

In terms of mobile ISPs, Vodacom and MTN made the biggest gains in market share, while Nashua had shown the strongest performance among resellers.

The researchers pointed out that while the trend of providing a full service offering continued, most of the large industry participants were becoming “increasingly polarised” in either the fixed-line space, which included the provision of dial-up, ADSL or leased-line access, or in the wireless space.

Meanwhile, the consultancy stated that it was too early to say which providers would be the winners or losers in the expected industry consolidation phase.

“Generally speaking, players that choose narrow niches, including some highly focused infrastructure deployments, might be best positioned. Such infrastructure niches could include metro fibre and/or point-to-point wireless connectivity where obvious gaps exist or cost advantages [can be] exploited,” said Neilson.

He noted that, while most large ISPs have reversed their earlier plans to build their own access infrastructure, they were also not expecting local loop unbundling to take place.

Instead, the ISPs were rather seeking out “innovative” last mile alternatives, including point-to-point microwave links in the metro areas, and some plans for fibre and high-speed digital subscriber line links in business parks and gated communities.

Meanwhile, BMI-T noted that, while declining Internet prices had led to a fall in the average revenue per user, growth in demand had resulted in a net growth in connections and revenues.

According to Neilson, there had also been strong growth in Virtual Private Network services and hosting services, including web hosting, data centre and application hosting, with ISPs continuing to play a major role in this market in direct competition with the major system integrator players and the incumbent telecommunications operators.

Further, the consultancy noted that alternative players had made a significant inroad in the wholesale data services space, traditionally the exclusive domain of Telkom and a few niche providers of satellite bandwidth services.  

Players with their own Internet protocol Core network, such as Internet Solutions, were making gains in the wholesale ADSL space, while infrastructure-based players like Neotel and Seacom were making important strides in providing global links and national points of presence.

“Niche players are springing up in the provision of hosting services, on-sold bandwidth from SEACOM, and related metro connectivity,” BMI-T stated.