Last days of the High St ISP?

Cliff Saran

The planned merger between Time Warner and AOL, announced last week, will change the Internet landscape and users will need to...

Cliff Saran

The planned merger between Time Warner and AOL, announced last week, will change the Internet landscape and users will need to tread carefully to avoid falling over in the emerging Net economy.

Among the companies that risk being stung by the AOL/Time Warner merger are those that have established free Internet service provider (ISP) businesses, such as Dixons, WH Smith, Tesco and the Nationwide Building Society, to attract customers to their Web sites and so run electronic trading operations.

The combine will produce a company that owns a vast amount of the Internet and would be able to offer users a far broader service than smaller ISPs.

Industry watchers predict that more massive Internet mergers are likely, making it even harder for retailers to maintain their free ISP businesses. Without the ability to offer customers access from their own branded ISP, retailers may find it increasingly difficult to preserve customer loyalty on the Web - as a customer could easily click on the URL of a rival retailer to make a purchase.

Dataquest's e-business group principal analyst, Kathryn Hale, said, "Major [firms] such as Disney and Yahoo need to acquire additional technologies, not build them, or they risk being sidelined."

Although Hale was referring to media companies in the Internet age, her observations apply equally well to any end user wishing to make substantial in-roads in the Web-based economy.

As for service providers, the future looks particularly shaky. Hale said the Internet might see frenzied partnerships between ISPs and content providers. This would inevitably improve the quality of information on the Internet.

Alternatively, users on the Internet could benefit from new forms of Internet services. "[ISPs may] focus on building their share of the consumer wallet by building a better story for bundled communications services, such as combinations of voice and Internet access on household PCs, TVs, cell phones and household appliances," Hale said.

Dr Henning Dransfeld, new media consultant at Ovum, argued that the merger would not kill free Internet access, rather a two-tier market would emerge. "The key argument for free services is that it allowed Internet access to grow much more quickly than the AOL model of paid-for services."

He believed that AOL would be forced to move towards offering free services but it would also offer paid-for interactive services.

A question remains over how free ISPs would be able to offer a viable alternative to the paid-for services from the likes of AOL/Time Warner. "Free ISPs would have to develop AOL-style quality services and reliable access to survive," Dransfeld said. Again, users stand to benefit as free Internet access improves in quality.

Some experts believe it is through alliances rather than acquisitions that big business will tackle the emerging Internet economy. Ken Fraser, an Internet research director at IDC Europe, did not expect to see many more mergers and acquisitions. He foresaw ISPs and content providers forming partnerships, especially in Europe. "Partnerships are easier to form," Fraser said.

"Firms are more likely to sell their Internet arms in order to gain in Internet cachet than merge with an Internet company."

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