Small businesses a key market for DSL services

17 Mar 2004

Small businesses will be one of the main market sectors to take advantage of advanced DSL services, even though many providers still see it as a product for residential users, the telecoms analyst firm Ovum has said.

Although the small business sector is a smaller niche than the consumer market, Ovum has indicated that it brings higher average revenue per user than the latter, with better profit margins.

According to Ovum senior analyst Michael Philpott, even small businesses had low expectations of DSL, thinking it would be useful only for basic internet access. More advanced features such as IP VPNs, remote back-up, videoconferencing were previously out of their reach, but DSL changes this, he said.

“Technically, DSL is simply a broadband access technology,” he said. “If configured correctly, it can be used to offer the same types of services and quality as say a Frame Relay connection.” However, Philpott added that incumbent telecoms operators have not marketed DSL in this way so as to protect their existing, profitable enterprise revenue streams.

“Such short-sightedness could cost the incumbent dear,” Philpott estimated. “Revenue streams from existing services, such as voice, are in decline, and new revenues from consumer broadband content are a long way off. So small enterprise DSL services is a key area for incumbents to both claw back and grow much needed revenue. Yet their fear of cannibalising current revenues streams is both holding them back and leaving them open to attack.”

Philpott cautioned that the small business market would not be easy to crack. “Many small businesses do not understand what benefits broadband would bring to them. Without any experience of advanced communications, return on investment is not easy for them to quantify.”

Operators must formulate the right service proposition, marketing strategy, price and level of quality, Ovum declared. They will only be successful if they can convince small businesses to buy DSL in the first place and then convince them gradually to buy more sophisticated DSL services.

The penalties for not succeeding in the SME sector will be seen in other areas of a provider’s business, Ovum warned.

By Gordon Smith