1. A Framework for Analyzing Strategies of Internet Service Providers (ISP) By: Erik Wierstra, Gabriele Kulenkampff, Hans Schaffers Presented by: Ron Johnson

2. Objectives To Provide an analysis of developments in markets for Internet Services To Provide an analysis of developments in markets for Internet Services Identify key factors affecting the competitive position of Internet Service Providers Identify key factors affecting the competitive position of Internet Service Providers Develop Scenarios describing the further development of the ISP industry Develop Scenarios describing the further development of the ISP industry

3. Developments in ISP Market Internet technology and Services Internet technology and Services INTserv (Integrated Services): Technology focuses on end user to end user QoS per data flow INTserv (Integrated Services): Technology focuses on end user to end user QoS per data flow DIFFserv (Differentiated Services): Technology supports capacity division in different pipes each with a different capacity DIFFserv (Differentiated Services): Technology supports capacity division in different pipes each with a different capacity

4. Developments in ISP Market Internet Business Innovation creates new technology making way for new services Internet Business Innovation creates new technology making way for new services Regulatory and Policy Issues Regulatory and Policy Issues Network Dependency may affect strategic innovation quality of services Network Dependency may affect strategic innovation quality of services

5. Developments in ISP Market Different actors on the ISP-supply side Different actors on the ISP-supply side 1. Global Operators (GlobalOne, Concert, MCI Worldcom). 2. National Telecom Operators (cf. EUnet, Ebone). 3. New Entrants 4. National or regional ISPs

6. Developments in ISP Market (cont’d) Internet Service Provider Growth Internet User Increases

7. Framework for Analyzing ISP Competitiveness Elements in Analyzing Competitive Advantages are derived from Porter include; Competitive forces, determining industry profitability (attractiveness) Competitive forces, determining industry profitability (attractiveness) Value Chain concept aiding source of competitive advantage and development of strategies in cost and differentiation Value Chain concept aiding source of competitive advantage and development of strategies in cost and differentiation

8. Framework for Analyzing ISP Competitiveness Value Chain Activities and its Representation Value Activity (infrastructure and intermediary services) Internet Services Main Cost Components Infrastructure: Supply of network accessing the Internet Access Provider (IAP) IP-transport, Telephony (dail up) Lines, interconnection, hardware, software, labor Supply of access network (connecting the IAP with an ISP connected with the Internet backbone) IP-transport Lines, Interconnection, hardware, software, labor Supply of backbone IP-transport Lines, Interconnection, hardware, software, labor

9. Framework for Analyzing ISP Competitiveness Analysis is based on the following 5 dimensions of strategy: 1.Factor Inputs: This dimensions relates on the technological, capital, and labor inputs 2.Value Chain Structure: Specific value chain structure as well as what influences buying choices 3.Product Portfolio: Characterized by the services offered (IP transport, Web Hosting, email, etc.) 4.Pricing Policy: Flat fee compared to usage based pricing 5.Market Segmentation: Geographical scope and user categories

10. Framework for Analyzing ISP Competitiveness Conceptual Framework for analyzing competitive position:

11. Factors Affecting ISP competitiveness Impact of factor input choices Impact of factor input choices Impact of cost provisions of service may create cost advantage Impact of cost provisions of service may create cost advantage Impact of characteristics of output may result in an advantage by differentiating the services from competition Impact of characteristics of output may result in an advantage by differentiating the services from competition

12. Factors Affecting ISP competitiveness Advantages Higher productivity Higher productivity Reduced expenses for network operations Reduced expenses for network operations Increased reliability of network services Increased reliability of network services Disadvantages Technology can be quickly outdated Higher initial investment Using advanced network infrastructure over mature network:

13. Different Types of ISPs and their competitiveness Features Incumbent telco New Carrier Small, regional ISP Inputs Capital intensive (inter)national Mature Technology Highly capital intensive (advanced), (international) Less capital intensive, less advanced, mature technology Functional value chain Vertically Integrated Ownership of infrastructure Not vertically integrated Product Portfolio Basis portfolio + other services Usage oriented Flat, fee bundling of services Pricing and bundling Flat fee, bundling of access and dial up Business Residential business; regional Market segmentation Residential, (Inter)national Business Residential, business

14. Different Types of ISPs and their competitiveness Examples: Incumbent Telco New Carrier Small, Regional ISP IVM and Angel, Vuurwerk and A1

15. Different Types of ISPs and their competitiveness Incumbent Telco New Carrier Small, Regional ISP High density of nation-wide structure (location advantage) High density of nation-wide structure (location advantage) Telephony service (Expertise in reliable services) Telephony service (Expertise in reliable services) High international network infrastructure High international network infrastructure International scope of the network infrastructure International scope of the network infrastructure Can provide more customized services Can provide more customized services

16. Different Types of ISPs and their competitiveness Incumbent Telco Strengths: One stop shop for customers. Higher level of control over network allowing higher guarantee for QoS Strengths: One stop shop for customers. Higher level of control over network allowing higher guarantee for QoS Weaknesses: Using older technology Weaknesses: Using older technology Opportunity: Updating technology Opportunity: Updating technology Threats: Increased competition Threats: Increased competition

17. Different Types of ISPs and their competitiveness New Carrier Strengths: High degree of control over network making it easier to provide QoS Strengths: High degree of control over network making it easier to provide QoS Weaknesses: Not as well known as the incumbent telco Weaknesses: Not as well known as the incumbent telco Opportunity: Face the competition for back bone capacity with the pricing of incumbent telcos Opportunity: Face the competition for back bone capacity with the pricing of incumbent telcos Threats: External factors Threats: External factors

18. Different Types of ISPs and their competitiveness Small Regional ISP Strengths: High quality of services and extremely flexible Strengths: High quality of services and extremely flexible Weaknesses: Only can provide service in very limited region. Cannot garauntee QoS due to factors outside of company control Weaknesses: Only can provide service in very limited region. Cannot garauntee QoS due to factors outside of company control Opportunity: Find niche market Opportunity: Find niche market Threats: External factors Threats: External factors

19. Different Types of ISPs and their competitiveness Volatile External Factors Technology: Possibility of new technology changing industry Technology: Possibility of new technology changing industry Regulation and policy: Changes in interconnection agreements, competition policies, regulations concerning intellectual property Regulation and policy: Changes in interconnection agreements, competition policies, regulations concerning intellectual property Market Structure: New players and essential market characteristics Market Structure: New players and essential market characteristics Customer Needs: Developments in preferences and trade-offs, pace of adaption of Internet services, penetration of services and Internet access rates. Customer Needs: Developments in preferences and trade-offs, pace of adaption of Internet services, penetration of services and Internet access rates.

20. Discussion and Conclusion Goal was to develop an analytical framework for analyzing business strategies for ISPs Goal was to develop an analytical framework for analyzing business strategies for ISPs The focal points of this article were the impacts of production characteristics on cost and opportunities for product differentiation The focal points of this article were the impacts of production characteristics on cost and opportunities for product differentiation Despite certain limitations this analysis gives bases for identifying successful ISP strategies Despite certain limitations this analysis gives bases for identifying successful ISP strategies

21. Bibliography A Framework for Analyzing Strategies of Internet ServiceProviders Erik Wierstra, Gabriele Kulenkamff, Hans Schaffers. Netnomics: Economic Research and Electronic Networking Amsterdam: June 2001. Vol 3, Iss 1, p. 35