U.S. Internet Service Provider Revenues Will Approach $23 Billion This Year, IDC Says

FRAMINGHAM, MASS., FEBRUARY 15, 2000 — Coming off a spectacular 67% increase in 1999, revenues in the U.S. Internet services market will increase another 29% in 2000 and flirt with the $23 billion mark. According to IDC, America Online and UUNet will lead the market's drive. These two Internet service providers (ISPs) have a commanding lead over the competitors in their market segments.

"The most striking development in the ISP market has to be the continuing dominance of UUNet and AOL in their respective market segments," said Steven Harris, an analyst with IDC's Business Network Services research program. "America Online is by far the largest consumer-oriented ISP, and UUNet dominates the market for business access, wholesale services, and value-added services by large margins over the number-two carrier in each segment."

Accounting for 40% of consumer access subscribers, America Online's share is more than the next 20 largest ISPs' combined share. UUNet controls 26% of revenues in the business segment, 43% in the wholesale segment, and 17% in the value-added services market — at least almost double the share of the nearest competitor in each market.

IDC expects consolidation within the consumer segment, with ISPs merging or taking over the consumer subscriber bases of other carriers. As a result, AOL will face larger rivals, but none will seriously threaten its dominance. An increasing number of ISPs will enter the other markets, and UUNet will get a run for its money, especially in the business access and wholesale segments.

According to IDC, the consumer segment will maintain the largest share of the market's revenues until 2002, when the value-added services segment will grab the lead.

"Value-added services will grow faster than the other segments as Web-hosting revenues skyrocket, free Internet service providers grow their subscriber bases, and corporations and consumers utilize services other than just access from ISPs," Harris said. "Growth in the consumer segment will moderate due to market saturation. However, the number of daily users in this segment will go up as will the length of time they remain online."

In the business market, the number of online users is increasing and Internet budgets are substantially increasing. However, traditional ISPs are benefiting less and less from this trend as interexchange carriers have replaced them as the largest providers of Internet access services to businesses.

In the wholesale market, an increasing number of affinity groups will become virtual Internet service providers (VISPs), and the increase in VISPs will positively impact demand for wholesale services.

IDC's new report, Internet Service Provider Market Review and Forecast, 1999-2004 (IDC #B21203), analyzes market demand and service provider strategies. The report forecasts U.S. Internet service provider revenue through 2004 divided by segment. It looks at 1999 revenues for the top 10 ISPs in the business access, wholesale, and value-added segments. For the consumer segment, it shows the number of subscribers for the top 22 ISPs. Type of Internet access by company size is also examined. Major ISP market trends are analyzed, and each market segment is discussed separately. Finally, the report features service provider profiles. To order a copy, contact Bruce Atlas at 1-800-343-4952, ext. 4053 or at batlas@idc.com.

About IDC

IDC delivers dependable, relevant, and high-impact data and insight on information technology to help organizations make sound business and technology decisions. IDC forecasts worldwide IT markets and technology trends and analyzes IT products and vendors, using a combination of rigorous primary research and in-depth competitive analysis. IDC is committed to providing global research with local content through more than 500 analysts in 43 countries worldwide. IDC's customers comprise the world's leading IT suppliers, IT organizations, and the financial community. Additional information can be found at http://www.idc.com.

IDC is a division of International Data Group, the world's leading IT media, research, and exposition company.

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