The European consumer wireless network router market has been declining slowly but surely over the past few years. This drop in channel revenues and unit sales is the result of fibre/superfast broadband deployments and implementation of Wi-Fi AC as standard in ISP-provided routers. By and large, consumers are happy with these modem routers as they come free or very cheap. But vendors are not, as it means that over 80% of the current consumer market is controlled by internet providers.
However, closer collaboration between the two could improve the situation for vendors, ISPs and end customers.
Focus on Italy
The Italian wireless router market since 2015 offers an interesting snapshot of the current dynamic. CONTEXT numbers reveal that volume sales for it and the German market used to be around twice as high as countries like France and the UK. Why? Because, historically, both German and Italian ISPs always sold or rented their own modem routers to customers, rather than charge a monthly fee or subsidise them completely. Many customers therefore decided they’d rather buy their own modem from a retailer rather than be forced to go with the ISP’s choice.
However, in the past year or two Italian ISPs have followed the device-for-free strategy seen in the UK and France – with some companies actively blocking the use of some features if their customers insist on using a third-party branded router. As a result, the Italian market has seen a remarkable slump, with volume channel sales declining to French/UK levels. This prompted an association of vendors and consumers to lobby the government to pass a law fining any ISP using unfair practices.
Since that law was passed in December 2018, CONTEXT figures have seen a rebound of 70% in revenues year-on-year in the vDSL segment of modem routers in the first two quarters of 2019. However, we shouldn’t have to rely on new legislation to resolve such market conflicts.
From a consumer perspective, it is quite straightforward: as long as ISPs provide for free a good modem router built to the latest Wi-Fi standards, consumers won’t see the need to buy their own model. That’s bad news for vendors, who are increasingly arguing that if they had more market share, they’d invest more in R&D and therefore be able to bring prices down – positively impacting ISPs and consumers.
Although ISPs are often blamed for the current situation, one must remember their own challenges. More router models means increased challenges in terms of support, especially in diagnosing whether an issue is hardware related or an internet line problem. This in turn potentially leads to unhappy customers, fewer renewals and slumping profits. From this perspective, ISPs are just trying to optimise customer service rather than make a profit at the expense of the vendor community.
The feeling we have here at CONTEXT is that closer collaboration between ISPs and vendors could work well for all stakeholders. If ISPs allowed vendors to have a bigger slice of the market and if vendors agreed in return to put expert resources into sharing the support burden, it could create growth all round. Vendors get to increase their revenue while internet providers can free up resources otherwise ploughed into support. This could mean more money to invest in new features and services to benefit end customers.
It might be some way off, but the potential is there for a solution that could benefit everyone, if the two main market combatants focused on collaboration rather than competition.
© CONTEXT 2020