This post follows on from the theme of another recent post I wrote entitled, “Reduced profits and fewer ISP's – the NZ ISP Market In 2015”.

This second round of comment largely stems from a NZTelco.com article that provided an estimate of the state of New Zealand's Internet Service Provider market as at Q1 2015 – check it out here.

Considering that DTS only provides services to businesses, 22nd out of 80 odd providers in New Zealand is not a bad result. I would of course hope, and expect, us to be higher up the list when it is next updated though.

The question that the NZtelco.com post raised for me was this: How do 40 odd ISPs continue to exist when between them they only hold 3.4% of a small broadband market?

Let's assume that each of these ISPs provides other primary services, and the connectivity services they sell are just a value add. In that case, I have to ask how long their clients will continue to tolerate the undoubtedly higher charges they are paying each month.

Companies of this size will primarily be relying on 3rd party infrastructure and service access, and in those conditions, it is basically impossible to sell connections at competitive market rates while having them contribute towards a positive bottom line result.

Customers, in both the residential and business markets, are becoming more aware of what to expect in terms of price and speed from their providers, in large part this is due to the wholesale buy prices for products now often being in the public domain.

Some of the ISPs listed are niche players (who I hear very good things about – looking at you WIC), I get that, and they will continue to fill a solid wireless/rural/regional space. But those in metro areas and devoid of a pretty dynamic growth plan are not long for this world.

I am going to attempt some maths here. If Spark's revenue from broadband is approximately $280m p/year, and they hold approximately 40% of the market, then the total market value is roughly, very roughly, $700m. 3.4% of $700m is $23.8m, that split between the 40 or so smallest ISPs in the country equates to annual revenue of approximately $600K per ISP in that bracket from broadband products.

If small ISPs are keeping prices low by operating as single operators or a two person team, then support suffers.

Faster circuits need more backhaul, more IP transit and bigger/faster routers/switches. Every client wants faster speeds, I know that at DTS it feels as though 200Mbps UFB fibre is now our default entry level service.

In short, the cost of providing a connection is going up, or put another way, the net return per client is going down.

Keeping in mind that the figures above are very rough, they do illustrate the difficulty the majority of small ISPs in NZ face in staying viable as their already tenuous bottom lines are put under increasing pressure.

Brendan Ritchie is the CEO of DTS, a business focused ISP that has been supplying clients across Australia and New Zealand with internet, voice and tailored WAN solutions since 2002. Tweet him on @bcarmody.