External Analysis of ISP Industry using Porter's Five Forces Model

1. Business Policy and
Strategic Management
An analysis of ISP industry using
External Analysis tools

2. Discussion Outline
 An introduction to the ISP industry by …….
 An external analysis of the ISP Industry in India
using Porter’s 5(6) forces by ……
 An external analysis of the ISP industry in India
using Strategic Group mapping by …..
 Conclusions by …..

3. Introduction to the ISP Industry
 Services provided by the ISP’s include:
 Email(including local server based POP clients)
 The World Wide Web(Internet)
 Bulletin Boards
 Voice and Fax services
 Web Hosting services
 Web page design and consultancy services
 Bundled packages/commercial packages(e-commerce)

4. Why ISP’s?

5. Porter’s 5 Forces
 Rivalry within Industry - HIGH
 Threat of Substitute Products - HIGH
 Threat of New Entrants – HIGH
 Bargaining Power of Suppliers - LOW
 Bargaining Power of Customers - HIGH

6. I- Rivalry within Industry - HIGH
Main Players Areas of Competition
Price
National Players Quality of Service
Access/Speed
International Entrants
Services
Local/Regional
Players Customer Service
Content
OSP
Security

7. Areas of Competition
• Heavy competition.
Price • A standard pricing is expected by consumers.
Quality of Service • Very important
• Can the company keep up with speed of
Access/Speed change of technology?
• A lot of customers require to be online 24x7.
Customer Service • Newer customers require online help.
• Online subscriptions or discounts at particular
Content web-pages affect consumer decisions.
Security • For larger businesses, security is a key issue.

8. Consumer Priorities in Indian
Market
Price • HIGH
Quality of Service • HIGH
Access/Speed • LOW-MID
Customer Service • HIGH
Content • LOW
Security • HIGH when required

9. II -Threat of substitute
services/providers- HIGH
Telecom Companies
Cable Companies
Portal Companies

10. General Threat Perception
Telecom Companies - HIGH
• Telecom companies can provide the same services as
ISP’s.
• They are significantly costlier and have lesser reach.
Cable Companies - LOW
• They have larger reach, but have greater difficulties
upgrading their technology for the same.
Portal Companies - LOW
• Companies like yahoo in some countries have tied up with
local ISP’s.

11. Threat perception in India
Telecom Companies - HIGH
• Especially after the advent of 3G services providing decent speed as
well as mobile internet services.
Cable Companies - LOW
• Almost non-existent in India as of now.
Portal Companies – LOW
• Sify had/has tied up with several local ISP’s to provide internet
services. No other notable mentions however.

12. III- Threat of new entrants: HIGH
Barriers to entry - LOW
• Very Little technical know-how is actually needed to get into the industry
Capital requirement - LOW
• Capital requirement is low as a lot of activity can be outsourced.
Risk - LOW
• Due to frequent mergers and consolidation plans, an easy exit plan is
feasible. Therefore, risk of investment is low.
Government Regulations – LOW
• There is little to no government regulation for setting up an ISP.

13. III-I - Barriers to entry - LOW
 Since technology as well as bandwidth can be
outsourced from either of telecom or cable
companies, the capital investments required to
venture into ISP industry are quite low.
 Lack of severe government regulations further
ease an entrants journey into an industry.

14. IV- Bargaining Power of Suppliers
LOW
Government - HIGH
• Government is a major supplier for licenses for setting up an ISP.
Telecom companies - LOW
• The telecom companies hold little bargaining power simply because
of the huge number of firms providing telecom services.
Backbone providers - HIGH
• Backbone providers are few in number and therefore have high
bargaining power.

15.  Why did we put the bargaining power of suppliers
low when two important suppliers actually have
high bargaining power?
 The answer is simple: The only sustain-worthy supply
needed is local copper connections(wires) which are
provided by telecom companies.
 The Government license is obtained/renewed once in
several years.
 The hardware/backbone is upgraded once in several
years.

16. Bargaining Power of Consumers:
LOW/HIGH
Consumers
Large Business Internet Cafes/Small
Average Consumer
Firms Internet based Firms

17. Consumer bargaining power
Large Business Firms - LOW
• Large business firms have little power, once they opt for an ISP. Backward
integration of services including local hosts and inter/intra office framework
is difficult. Therefore, they tend to stick on to a particular ISP.
Internet Cafes/Small Internet Firms - HIGH
• They typically have contracts with local ISP’s. This probably makes them
most valued consumers since they can afford backward integration of
services while also having significantly higher usage.
Average Consumer
• They have low switching costs and therefore high bargaining power.

18. Strategic Group Mapping

19. COMPANY MARKET SHARE
BSNLStats 56.76 %
MTNL 14.29 %
Bharti Airtel 8.07 %
Reliance Communications 7.56%
Hathway Communications 1.94
Stats as of March 2011

20. Technology Usage Percentage
DSL
Stats 48.98%
Cable Modem 4.39%
Leased Line 0.19%
Ethereal LAN 3.74%
Fibre 0.22%
Radio 6.88%
Dial-Up 35.32%
Others 0.27%
Stats as of March 2011

21. Strategic Mapping

22. Strategic Mapping - ISP

23. Conclusion
 Mergers and Acquisitions
 Additional Services
 Specialization
 Pricing Models

24. Conclusion:
Bargaining
power of
Consumers
Bargaining
Rivalry Threat
power of
suppliers
within from new
entrants
Industry
Threat
from
substitute
products