Internet service providers across the country are struggling to make a profit, Statistics Canada reported yesterday.
About 46 per cent of the more than 200 ISPs surveyed reported a loss in 2001, the federal research agency said. The financial outlook is grim as costs are rising faster than sales across the sector, Statscan said.
While operating revenue rose 27 per cent to $1.3-billion in 2001, up from about $1-billion in 2000, the rate of growth was significantly less than the gain of 42 per cent reported in 2000. At the same time, the industry's operating expenses rose 36 per cent to $1.6-billion, up from $1.1-billion a year earlier. For every dollar of revenue, ISPs reported a loss of 22.2 cents in 2001, compared with a loss of 13.9 cents in 2000, Statscan reported.
Statscan cited five obstacles to growth: competition, high costs, delays in obtaining equipment from suppliers, financing and finally, access to markets.
"The number of access providers has shrunk and large players such as telcos and cable companies have entered the market, creating an environment of intense competition," said the Statscan report, entitled "Struggling to remain competitive: a study of factors impeding growth for Canadian Internet service providers."
Large firms that report sales of more than $10-million from Internet access accounted for the lion's share of industry revenue. Together, large ISPs made up only 4 per cent of the surveyed companies but contributed 79 per cent of the sector's revenue. The Statscan data were compiled from 256 unidentified companies that receive the majority of revenue from Internet access.
Jay Thomson, president and chief executive officer of the Canadian Association of Internet Providers, said Statscan's conclusions are "no surprise" to the association's cash-strapped members. Despite increasing Internet penetration, the sector continues to shrink as weak players are acquired or go bankrupt, he said.
"This is really a competitive issue," Mr. Thomson said. "It's all related to the inability of ISPs, meaning non-cable, non-telcos, to compete in the high-speed marketplace."
Ottawa-based CAIP wants the federal communications regulator to grant small Internet firms the right to offer so-called "lite" high-speed access via the infrastructure controlled by larger cable and telecommunications players. At present, the fast-growing market for high- and lite-speed access is dominated by communications giants such as BCE Inc., Rogers Communications Inc., Telus Corp. and Shaw Communications Inc.
The association alleges lite-speed access undermines competition and is an attempt to drive the estimated 400 small firms offering dial-up Internet access out of business.
"If you are a small dial-up [Internet access] provider, it's very hard to compete," said Brian Sharwood, analyst at the Toronto research firm Seaboard Group.
CAIP scored a minor victory Monday when the Canadian Radio-television and Telecommunications Commission ruled the cable industry must resale its lite-speed service at a 25-per-cent retail discount to independent ISPs.
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